ExpertMedium2 marksMultiple Choice
ACCA · Question 09 · Inheritance tax
Sarah owned 60% of the shares in a family company, valuing her holding at £600,000. She gifted 15% of the shares to her son. A 45% holding is valued at £350,000, and a 15% holding is valued at £100,000. What is the value of the transfer for IHT purposes?
Sarah owned 60% of the shares in a family company, valuing her holding at £600,000. She gifted 15% of the shares to her son. A 45% holding is valued at £350,000, and a 15% holding is valued at £100,000. What is the value of the transfer for IHT purposes?
Answer options:
A.
£100,000
B.
£250,000
C.
£150,000
D.
£350,000
How to approach this question
Apply the diminution in value principle: Value of estate before the transfer minus the value of the estate after the transfer.
Full Answer
B.£250,000✓ Correct
Under IHT rules, the value of a lifetime gift is determined by the 'diminution in value' of the donor's estate. Sarah's estate was worth £600,000 before the gift and £350,000 after. The fall in value is £250,000, which is the value of the transfer.
Common mistakes
Using the market value of the 15% holding (£100,000) instead of the diminution in value.
Practice the full ACCA TX — Taxation Practice Exam 6
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