ACCA Advanced Taxation (ATX) Practice Exam

When can the reduced rate of 36% apply for Inheritance Tax?

1. When any gift is made

2. When gifts to charity are 10% or more of the estate

3. When transferring shares to family

4. When the estate is valued under a set limit

The correct answer is: When gifts to charity are 10% or more of the estate

The reduced rate of 36% for Inheritance Tax applies when the value of gifts to charity amounts to 10% or more of the deceased's estate. This reduced rate is aimed at encouraging charitable giving, as individuals looking to leave a legacy can benefit from a lower tax liability when they choose to allocate a significant portion of their estate to charitable causes. By donating to registered charities, an individual not only supports causes they care about but also reduces the overall amount taxed upon their estate after their passing. In contrast, simply making any gift (the first choice) does not trigger the reduced rate, as the focus is strictly on charitable contributions relative to the total estate value. Sharing family-owned assets like shares (the third choice) does not relate to the reduced tax rate but may involve different provisions regarding gift tax. Lastly, the value of the estate (the fourth choice) is not relevant to achieving the reduced rate; rather, it is the specific proportion of charitable giving that qualifies the estate for the advantageous tax rate.