Peter makes a gift of £400,000 to his niece and dies five years and three months later, having made no other gifts. The nil rate band is £325,000, the death rate is 40 percent, and taper relief reduces the tax by 60 percent for death between five and six years after the gift. Ignoring annual exemptions, how much tax is payable on the gift?
Answer and explanation
Correct answer: B. £12,000
- Step 1: The gift failed to be exempt because Peter died within seven years, so it is chargeable at death rates and uses the nil rate band first.
- Step 2: £400,000 - £325,000 = £75,000 taxable at 40 percent = £30,000, then taper relief of 60 percent leaves 40 percent of £30,000, which is £12,000.
Answer
£12,000.
Why not the others: £30,000 ignores taper relief; £18,000 is the relief itself rather than the tax; £160,000 taxes the whole gift at 40 percent.
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