ACCA Advanced Taxation (ATX) Practice Exam

What type of transfers are exempt for Inheritance Tax (IHT) regarding political parties?

1. Transfers made to any charitable organization

2. Transfers made to qualifying political parties

3. Transfers made to family members of MPs

4. Transfers of properties valued under £5,000

The correct answer is: Transfers made to qualifying political parties

Transfers made to qualifying political parties are exempt from Inheritance Tax (IHT) under UK tax law. This exemption is specifically designed to promote political engagement and support democratic processes. Qualifying political parties are those that have received a certain percentage of votes in the past general elections, which ensures that only established parties benefit from this relief. The rationale behind this exemption lies in the principle of encouraging contributions to the political system, allowing parties to receive donations and maintain operations without incurring tax liabilities that could deter support from potential donors. This exemption applies to gifts made to these parties, thereby encouraging individuals to support their political choices financially. In contrast, while some other options may seem plausible, they do not align with the established tax provisions regarding IHT exemptions. For instance, charitable donations do have their own exemption criteria, but they are usually distinct from political party contributions. Additionally, transfers made to family members of Members of Parliament (MPs) are treated like any other individual gifts and are subject to the standard IHT rules. Lastly, property transfers below a specific threshold may have different tax considerations but are generally not exempt from IHT.