ACCA Advanced Taxation (ATX) Practice Exam

How are unit trusts valued for Inheritance Tax purposes?

1. At the higher of bid or offer price

2. At the average of the bid and offer price

3. Valued at the lowest bid price

4. Based on the most recent market analysis

The correct answer is: Valued at the lowest bid price

Unit trusts are valued for Inheritance Tax purposes based on the lowest bid price. This valuation method is rooted in the principle of conservatism, which aims to ensure that the estate's taxable value is not overstated. The bid price represents the amount at which an investor can sell their units back to the trust manager. By using the lowest bid price, the valuation reflects the most conservative estimate of the value of the trust assets, ensuring that tax liabilities are based on the most defensible figure possible in the context of tax assessments. Using the highest bid or offer prices, or even an average, would inflate the asset value and potentially lead to the estate being assessed for more tax than strictly necessary. Therefore, the correct approach for Inheritance Tax calculations is to adopt the lowest bid price, giving a transparent and fair valuation aligned with the trust's realizable value in the market.