ACCA TX Course - Chapter 21: Inheritance Tax (Part 2)

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In the second part of our main stage one calculation, we look at the chargeable amount from a transfer, which is the value of the transfer minus any exemptions. The first step is to include the chargeable amount in our proforma. We also need to consider the nil rate band (NRB), which has been fixed at £325,000 since 2009. It's essential to identify any Chargeable Lifetime Transfers (CLTs) the donor has made in the seven years before the current gift, as these will need to be deducted from the NRB. A higher number of past CLTs will increase taxable amounts and complicate calculations.

After finding the chargeable amount and factoring in the NRB and CLTs, we arrive at the taxable amount. If the recipient pays the tax, we apply a 20% tax rate. If the donor pays, we calculate it as 20% of the grossed-up gift using a 20/80 multiplier to reflect that the tax is included in the gift's value. This approach acknowledges the difference between net and gross gifts. This stage of the calculation requires careful attention, but with practice, it will become easier. Remember, the NRB amount is £325,000.

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