ACCA Advanced Taxation (ATX) Practice Exam

What is a charitable exemption concerning Inheritance Tax (IHT)?

1. Transfers to foreign charities are exempt

2. Transfers made to recognized UK charities are exempt

3. Transfers to the government are exempt

4. All gifts during someone's lifetime are exempt

The correct answer is: Transfers made to recognized UK charities are exempt

A charitable exemption concerning Inheritance Tax (IHT) primarily refers to the provision that allows certain transfers of assets to recognized charities to be exempt from tax. When an individual makes a transfer of assets, such as money or property, to a charity that is recognized by the relevant tax authority, this transfer will not be subject to IHT. This exemption encourages philanthropic giving and allows individuals to support charitable causes without incurring additional tax liabilities. Recognized UK charities are defined as those registered with the Charity Commission in England and Wales, the Office of the Scottish Charity Regulator, or the Charity Commission for Northern Ireland. The other options do not accurately reflect the specifics of charitable exemptions. For instance, transfers to foreign charities generally do not qualify for IHT charitable exemptions under UK law, as the focus is mainly on recognized domestic charities. While transfers to the government might be related to tax implications, they do not constitute charitable donations that fall under the exemption criteria. Lastly, the assertion that all gifts made during someone's lifetime are exempt is incorrect, as gifts can be taxable in certain circumstances unless they qualify under specific exemptions or allowances.