ACCA Advanced Taxation (ATX) Practice Exam

What is the function of the RNRB tapering rule?

1. To fully exempt small estates

2. To assess liability on estate transfers

3. To adjust RNRB based on estate size

4. To determine inheritance tax rates

The correct answer is: To adjust RNRB based on estate size

The RNRB tapering rule is designed specifically to adjust the Residence Nil Rate Band (RNRB) based on the size of the estate. The RNRB allows individuals to pass on value from their residence without incurring inheritance tax, but this relief is gradually reduced when an estate exceeds certain thresholds. When an estate's value surpasses a specific threshold (currently set at £2 million), the RNRB is reduced by £1 for every £2 over this limit. This means that larger estates benefit less from the RNRB, as it effectively tapers off as the estate's size increases. This mechanism is meant to ensure that the relief only benefits those with smaller estates and serves to limit the potential tax advantage of those with more substantial assets, making it a targeted form of tax relief. The other options do not accurately reflect the purpose of the RNRB tapering rule. The first option regarding the exemption of small estates does not capture the essence of tapering, which specifically deals with larger estates. Assessing liability on estate transfers and determining inheritance tax rates are broader considerations that do not pertain directly to the specific function of tapering the RNRB based on estate size.