ACCA Advanced Taxation (ATX) Practice Exam

True or False: The Annual Exemption for IHT must always be used in the year it is available.

1. True

2. False

3. It can be carried forward for five years

4. It can be held back for a year

The correct answer is: False

The statement is false because the Annual Exemption for Inheritance Tax (IHT) does not have to be used in the year it becomes available. If a taxpayer does not use their Annual Exemption in a particular tax year, it does not mean they lose the benefit altogether. Instead, they cannot carry this Annual Exemption forward to future years, which distinguishes it from certain other tax reliefs or allowances that can be carried forward. This means that taxpayers have the option to utilize their exemptions flexibly according to their circumstances in each tax year, allowing them potentially to maximize their tax efficiency when planning for gifts or estates. Understanding this helps clarify the strategic use of tax exemptions in estate planning, emphasizing the importance of year-by-year decisions regarding gifts.