ACCA Advanced Taxation (ATX) Practice Exam

Which of the following is NOT a primary factor that may affect a donor's IHT liability?

1. The total value of gifts made

2. The donor's marital status

3. The number of properties held by the donor

4. The duration the donor and donee have had a relationship

The correct answer is: The duration the donor and donee have had a relationship

The correct answer is that the duration of the relationship between the donor and the donee is not a primary factor affecting a donor's Inheritance Tax (IHT) liability. Inheritance Tax primarily considers the value of gifts made by the donor, their marital status, and their asset holdings, as these have a direct impact on the value of the estate at the time of death. When assessing IHT, the total value of gifts made by the donor is crucial, as gifts above certain thresholds may be taxable. The donor's marital status is also significant, as there are specific exemptions and reliefs that apply depending on whether the donor is married or has a civil partner. Furthermore, the number of properties held by the donor affects the overall value of the estate and thus plays a role in determining IHT. On the other hand, the duration of the relationship between the donor and the donee does not influence the IHT calculation. While it may have social or personal implications, it is not a factor that changes the tax implications of the gifts made or the liabilities incurred by the donor. Therefore, focusing on the established factors of monetary value and marital status provides a clearer understanding of how IHT operates.