ACCA Advanced Taxation (ATX) Practice Exam

If the donor pays lifetime tax on a Chargeable Lifetime Transfer (CLT), what must be added to obtain the gross chargeable amount?

1. Add the IHT to the value of the chargeable transfer

2. Subtract the taxable amount from the gross value

3. Include any lifetime gifts made within the last seven years

4. Add penalties for late payment

The correct answer is: Add the IHT to the value of the chargeable transfer

In the context of a Chargeable Lifetime Transfer (CLT), the correct approach is to add the IHT (Inheritance Tax) to the value of the chargeable transfer to determine the gross chargeable amount. This is because the CLT itself only reflects the market value of the assets transferred at the time of the gift. To ascertain the true impact on the donor's estate and the full tax implications, the Inheritance Tax liability must be included. By adding the tax to the transfer value, you arrive at the total gross amount that will be subject to taxation at the time of the transfer. This method ensures that all liabilities are reflected accurately, facilitating clearer financial planning both for the donor and the recipients. The gross chargeable amount is critical for calculating any potential tax exposure and ensures compliance with tax regulations. The other options do not align with the correct methodology for determining the gross chargeable amount in this scenario.