ExpertEasy2 marksMultiple Choice
ACCA · Question 08 · Inheritance tax
On 1 May 2023, David transferred £150,000 into a discretionary trust. He had made no previous lifetime gifts. What is the immediate Inheritance Tax (IHT) liability on this transfer?
On 1 May 2023, David transferred £150,000 into a discretionary trust. He had made no previous lifetime gifts. What is the immediate Inheritance Tax (IHT) liability on this transfer?
Answer options:
A.
£0
B.
£30,000
C.
£60,000
D.
£37,500
How to approach this question
Identify the type of transfer (CLT). Check if the value exceeds the available Nil Rate Band (£325,000). If it does not, the tax rate is 0%.
Full Answer
A.£0✓ Correct
A transfer to a discretionary trust is a Chargeable Lifetime Transfer (CLT). However, lifetime IHT is only payable at 20% on the excess over the available Nil Rate Band (£325,000). Since £150,000 is below the NRB, the immediate tax liability is £0.
Common mistakes
Applying the 20% lifetime rate to the entire transfer without deducting the Nil Rate Band.
Practice the full ACCA TX — Taxation Practice Exam 6
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