ACCA Advanced Taxation (ATX) Practice Exam

Is it true that a lifetime tax deduction can result in a repayment of Inheritance Tax (IHT)?

1. True

2. False

The correct answer is: False

A lifetime tax deduction cannot directly result in the repayment of Inheritance Tax (IHT) as Inheritance Tax operates on a different mechanism. When individuals make lifetime gifts, such gifts may fall under specific rules regarding IHT, particularly if they exceed the annual exemption limit. Lifetime gifts can potentially reduce the value of an estate for IHT purposes if the donor survives for seven years after making the gift. If the donor passes away within this period, the value of the gift may still be included in the estate's value, potentially leading to an IHT liability rather than a repayment. Conversely, deductions and exemptions applicable to other forms of taxation, such as income tax or capital gains tax, don't influence IHT directly and may not translate to an actual repayment. In summary, while certain lifetime gifts can affect the IHT calculation, there is no mechanism that allows a lifetime tax deduction itself to lead to an IHT repayment.