ACCA ATX Inheritance Tax: Complete Study Guide for the UK Exam

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Last reviewed: May 2026  |  Relevant to: ACCA ATX-UK (P6)  |  Tax year: 2024/25

What IHT Covers in ATX — Scope and Exam Weighting

Inheritance tax is a core area of the ACCA Advanced Taxation (ATX-UK) syllabus. The paper tests candidates' ability to apply IHT rules to realistic scenarios involving individuals, families, and business owners — often in combination with capital gains tax, income tax, and trust taxation.

IHT questions appear regularly in both Section A (the compulsory 50-mark case study) and Section B (optional questions). In a typical sitting, IHT-related content can account for 10 to 20 marks, either as a standalone question or as an integrated element of a broader personal tax scenario. Because the rules interact heavily with other taxes, a confident grasp of IHT mechanics improves performance across the paper, not just in dedicated IHT questions.

The full ATX study hub covers every syllabus area in detail. This guide focuses exclusively on inheritance tax.

The Nil Rate Band and Residence Nil Rate Band

The nil rate band (NRB) is £325,000 for 2024/25. This is the threshold below which no IHT is charged. The NRB has been frozen at this level since 2009 and the freeze is legislated to continue to April 2030.

The residence nil rate band (RNRB) is £175,000. It applies when a residential property that was the deceased's home (or was previously their home) is left to direct descendants — children, stepchildren, adopted children, or grandchildren. The RNRB is tapered at a rate of £1 for every £2 by which the net estate exceeds £2 million, so it phases out entirely at £2.35 million.

Unused NRB and RNRB can be transferred between spouses or civil partners. This means a surviving spouse may have a combined NRB of up to £650,000 and a combined RNRB of up to £350,000 — a total threshold of £1 million before IHT applies.

The NRB is also used in the cumulation rules for lifetime transfers. Any CLTs made in the seven years before a gift reduce the NRB available for that gift. This is a common source of calculation errors in the exam.

Potentially Exempt Transfers (PETs)

A potentially exempt transfer is a lifetime gift made by an individual to another individual (or to a bare trust). At the time of the gift, no IHT arises. The gift becomes fully exempt if the donor survives for seven years from the date of the gift. If the donor dies within seven years, the gift fails and becomes chargeable.

When a PET fails, it is added to the death estate for the purpose of calculating IHT. The PETs made earliest in the seven-year period use up the NRB first, which is why the order of transfers matters when working through an exam question.

Taper Relief on Failed PETs

Where the donor survives more than three years after making the gift, taper relief reduces the IHT liability. Note carefully: taper relief reduces the tax, not the value of the gift used in calculations.

• 0–3 years: no reduction — full tax applies

• 3–4 years: 20% reduction in tax

• 4–5 years: 40% reduction in tax

• 5–6 years: 60% reduction in tax

• 6–7 years: 80% reduction in tax

Taper relief only applies when the value of the failed PET exceeds the available NRB. If the NRB covers the full value of the gift, taper relief is irrelevant because there is no tax to reduce.

Chargeable Lifetime Transfers (CLTs)

A chargeable lifetime transfer is a gift that is immediately chargeable to IHT. The most common CLT in ATX is a gift into a discretionary trust. CLTs are also made when assets are transferred into certain other types of trust.

Tax on a CLT is charged at 20% (the lifetime rate, which is half the death rate of 40%) on the amount by which the CLT exceeds the available NRB at the time of the transfer. The NRB available is reduced by any CLTs made in the seven years before the current transfer.

If the donor pays the tax, the rate remains 20%. If the trustees pay the tax, the transfer must be grossed up using the fraction 20/80 to arrive at the gross chargeable transfer.

If the donor dies within seven years of the CLT, additional IHT may be payable. The tax is recalculated at the full 40% death rate. If this recalculated figure exceeds the lifetime tax already paid, the additional amount is collected from the trustees. Taper relief applies to CLTs in the same way as for PETs.

The Death Estate

On death, IHT is charged at 40% on the chargeable estate after deducting liabilities and applying the available NRB (and RNRB where applicable). Failed PETs and CLTs made in the seven years before death are brought into the cumulation, reducing the NRB available to the estate.

Fall in Value Relief

Where a failed PET or CLT has fallen in value between the date of the gift and the date of death, the lower value at death can be substituted when calculating IHT on the death estate. This prevents IHT being charged on value that no longer exists. The relief is claimed by the recipient, not the estate.

Quick Succession Relief

Quick succession relief (QSR) applies where the deceased received assets on which IHT was paid within the five years before their death and those assets remain in the estate. The relief gives a percentage reduction in IHT based on how soon after the first death the second death occurs: 100% if within one year, reducing in 20% steps down to 20% if the second death occurs in the fifth year.

IHT Exemptions

Several exemptions reduce the chargeable value of a transfer:

• Annual exemption: £3,000 per tax year. Any unused amount from the previous tax year can be carried forward and used in the current year (but only one year of carry-forward is permitted).

• Small gifts exemption: £250 per donee per tax year. Cannot be combined with the annual exemption for the same donee.

• Marriage / civil partnership exemption: £5,000 from a parent, £2,500 from a grandparent or one of the couple to the other, £1,000 from any other person. Applies to gifts made on the occasion of the marriage or civil partnership.

• Normal expenditure out of income: Gifts that are regular, made out of income (not capital), and do not reduce the donor's standard of living are fully exempt. This exemption is unlimited in amount and is frequently tested in ATX scenarios involving wealthy individuals making regular gifts.

• Spouse / civil partner exemption: Transfers between UK-domiciled spouses or civil partners are fully exempt with no upper limit.

• Charity exemption: Gifts to qualifying UK charities are exempt. Leaving 10% or more of the net estate to charity reduces the IHT rate on the remainder from 40% to 36%.

Business Property Relief (BPR)

Business Property Relief is one of the most valuable reliefs in the ATX syllabus and is tested frequently. It reduces the chargeable value of qualifying business assets by either 100% or 50%.

100% BPR

• A sole trader business or interest in a partnership

• Unquoted shares in a company (including shares listed on AIM, which HMRC treats as unquoted for BPR purposes)

50% BPR

• Shares in a quoted company where the transferor had control (more than 50% of voting rights)

• Land, buildings, or machinery owned personally and used in a partnership in which the transferor is a partner, or in a company that the transferor controls

BPR requires the asset to have been owned for at least two years immediately before the transfer. BPR does not apply to investment businesses — the business must be trading. Where a company holds both trading and investment assets, BPR may be restricted or denied if the investment element is substantial.

Agricultural Property Relief (APR)

Agricultural Property Relief reduces the agricultural value of qualifying farmland and farm buildings. The relief rates mirror those of BPR:

• 100% APR: applies where the transferor farms the land themselves or where the property is subject to a tenancy granted on or after 1 September 1995.

• 50% APR: applies to land let on tenancies that predate 1 September 1995.

APR applies only to the agricultural value of the property. Where the market value of land exceeds its agricultural value (for example, where it has development potential), the excess above agricultural value does not qualify for APR but may qualify for BPR if the property is part of a trading farming business. The ownership period requirement is two years for owner-occupiers and seven years for landlords.

Common ATX Exam Mistakes on IHT

• Applying taper relief to the value of the gift rather than to the tax. This is the single most common IHT error in ATX. Taper relief reduces the IHT charge, not the amount brought into cumulation.

• Forgetting the seven-year cumulation when calculating the NRB available for a later transfer. Always list transfers in chronological order and check whether earlier CLTs fall within the seven-year look-back window for the transfer being calculated.

• Applying BPR to investment companies. BPR is only available for trading businesses. An asset management company or property investment company does not qualify.

• Confusing the annual exemption and the small gifts exemption. They cannot both apply to the same gift to the same donee. The annual exemption applies first; the small gifts exemption applies to separate, smaller gifts to different donees.

• Ignoring grossing up for CLTs where the transferor pays the tax. If the question states that the settlor (not the trustees) pays the IHT on a CLT, no grossing up is required — the transfer is already a gross figure from the donor's perspective only when trustees pay.

• Omitting the RNRB conditions. The RNRB is not available automatically. It requires a residential property passing to a direct descendant and is tapered for larger estates.

ATX Study Tips for Inheritance Tax

IHT rewards candidates who practise the mechanics systematically rather than trying to memorise rules in isolation. The following approach works well:

• Master the chronological layout. Always present lifetime transfers in date order. ACCA markers award method marks for clearly structured workings, even where numerical errors occur. A timeline approach — listing each transfer, its gross value, the NRB used, and the tax arising — makes your logic transparent and minimises dropped marks.

• Learn the taper relief rates cold. The five percentage bands (0%, 20%, 40%, 60%, 80%) come up in almost every IHT question. Commit them to memory so you can apply them under time pressure without second-guessing.

• Practice BPR/APR integration. Reliefs are almost always tested alongside the core calculations, not in isolation. Practice questions that combine BPR with CLTs or death estates to replicate the exam style.

• Work through past ACCA ATX questions. ACCA publishes past papers and examiner reports. Reading the examiner's comments on IHT questions reveals the exact errors that cost candidates marks and shows how to structure a high-scoring answer.

• Use Learnsignal's video-led approach. Learnsignal ATX tutors break IHT down step by step, using worked exam-standard examples that mirror the style and complexity of real ATX questions. Video tuition is particularly effective for IHT because seeing the workings built up in real time — rather than reading a static solution — helps candidates internalise the layout and logic they need to replicate under exam pressure.

For a full overview of the ATX syllabus, exam structure, and how IHT connects to other topic areas, visit the ATX study hub or explore the broader ACCA Strategic Professional Advanced Taxation course page.

Frequently Asked Questions: IHT in ACCA ATX

What is inheritance tax in ACCA ATX?

Inheritance tax in ACCA ATX is a UK tax charged on the transfer of wealth on death and on certain lifetime gifts. It is levied at 40% on estates above the nil rate band of £325,000, with an additional residence nil rate band of £175,000 where a residential property passes to direct descendants. ATX tests IHT in depth, including the treatment of potentially exempt transfers, chargeable lifetime transfers, and reliefs such as business property relief and agricultural property relief.

How is IHT calculated in ATX?

IHT is calculated by establishing the chargeable estate or transfer, applying exemptions and reliefs, setting the result against the nil rate band, and charging 40% on any excess. For the death estate you must also bring in failed PETs and CLTs from the seven years before death to reduce the available NRB, and apply taper relief where relevant.

What is taper relief and how does it work?

Taper relief reduces the IHT payable — not the value of the gift — where the donor survives between three and seven years after making a gift that exceeds the nil rate band. The reductions are: 3–4 years = 20%; 4–5 years = 40%; 5–6 years = 60%; 6–7 years = 80%. No relief applies if death occurs within three years of the gift.

What is Business Property Relief in IHT?

BPR reduces the chargeable value of qualifying business assets. Unquoted shares and sole trader or partnership interests receive 100% relief. Quoted controlling shareholdings and land or machinery used in a partnership or controlled company receive 50% relief. The asset must be owned for at least two years and the business must be trading.

How are PETs and CLTs different?

A PET is exempt when made and only becomes chargeable if the donor dies within seven years. A CLT is immediately chargeable at 20% on the amount above the available NRB. If the donor dies within seven years of either type of transfer, IHT is recalculated at the death rate of 40%, with taper relief applied where the donor survived more than three years.

What exemptions reduce an IHT estate?

Key exemptions include the annual exemption (£3,000 per year, with one year carry-forward), the small gifts exemption (£250 per donee), the marriage or civil partnership exemption (up to £5,000 from a parent), the normal expenditure out of income exemption, and the inter-spouse or civil partner exemption (unlimited for UK-domiciled transfers).

How much of ATX is inheritance tax?

IHT is a core ATX topic that regularly accounts for 10 to 20 marks in a sitting. It appears in both the compulsory Section A question and optional Section B questions, often integrated with CGT and trust taxation. ACCA treats it as exam-critical, and exam performance reflects the depth of a candidate's preparation on this area.

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