Inheritance tax and capital gains tax for ATX-UK

Part 2 of 4

This is the Finance Act 2020 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2021 to 31 March 2022. Candidates sitting ATX-UK after 31 March 2022 should refer to the Finance Act 2021 version of this article (to be published on the ACCA website in 2022).

In the first part of this article we looked at the approach that needs to be taken when considering the inheritance tax (IHT) and capital gains tax (CGT) implications of a particular transaction.

The remaining parts of this article look at the two taxes in more detail, starting with an overview of the fundamentals as set out in Table 1 below. You should read the table carefully and think about the issues raised. If you do not have sufficient knowledge to think through the implications of a particular point you should research that area in your study text.

Table 1: Overview of CGT and IHT



Arises on:

• Sales
• Gifts or sales at
an undervalue
• Lifetime transactions only

• Gifts or sales at an undervalue, if either:
- Chargeable lifetime transfers
- Potentially exempt transfers within seven years of death
• The death estate
Relevant value:Market value of
the asset
Fall in value of the donor’s estate
Relevance of residence
and domicile:

Liability to CGT:
• Only if resident or temporarily
(there are two exceptions to this)

If non-UK domiciled:
• Gains on overseas assets may be taxed on the remittance basis (this may require payment of remittance basis charge)

Residency is relevant when considering deemed UK domicile




If non-UK domiciled:
• Overseas assets are not subject to UK IHT

Transfers to spouse
or civil partner:

Take place at no gain, no loss


(Note: a limited exemption of £325,000 applies if the recipient spouse is non-UK domiciled unless an election to be treated as deemed domiciled is made)

The importance
of timing

• Need to consider the tax year of disposal which will determine:

  • Utilisation of
  • Availability of the
  annual exempt
  • Rate of tax

Need to consider:

• The availability of the annual exemption
• The use of the nil rate band in the previous seven years
• The availability of taper relief
• No IHT on donor's death if survive gift for seven years


Various assets are exempt, including:

• Wasting chattels
• Low value non-wasting chattels
• Main residence

There is also an annual exempt amount

All assets are subject to IHT with one important exception:

• Overseas assets owned by an overseas domiciled individual

Certain lifetime gifts are exempt (up to specified limits) including:

• Small gifts, marriage gifts
• Gifts out of income

There is also an annual exemption for lifetime gifts

Reliefs available
in respect of
business assets

Rollover relief

• Requires proceeds to be invested in replacement business assets

Gifts holdover relief

Entrepreneurs’ relief

Incorporation relief

Business property relief

Other reliefs

Enterprise investment scheme; and
Seed enterprise investment scheme:

• Requires proceeds to be invested in qualifying unquoted trading company shares

Agricultural property relief

Other matters
to consider:
• The availability of double tax relief
• Due dates
• The availability of quick succession relief
• The availability of double tax relief
• The availability of fall in value relief on death 
• Due dates
• Who is responsible for paying any tax due

Comparison of alternative gifts

The remainder of this article is based on the scenario set out below. The scenario is a combination of two commonly examined situations: the comparison of alternative gifts and the comparison of gifting an asset now with leaving it to the intended recipient via a will.

Edward Teach, a 74-year-old widower, has one child, Anne Bonney. Edward intends to leave the whole of his estate to Anne on his death but wishes to make a lifetime gift to her on 1 June 2021. Anne will sell the gift received from Edward immediately in order to enable her to purchase a second home overseas. Both Edward and Anne are resident and domiciled in the UK.

There are two possible gifts:

1. 6,000 shares in Adventure Ltd
Adventure Ltd is an unquoted trading company. Edward owns 20,000 shares in the company representing an 80% holding. Edward purchased the shares from a third party, such that investor’s relief will not be available. The 6,000 shares have an estimated market value of £650,000 and cost Edward £550,000 four years ago. The company owns land held as an investment which represents 8% of the value of its total assets and 12% of the value of its chargeable assets. This land is an excepted asset for the purposes of business property relief.

2. A motor yacht
The yacht is worth £650,000. It cost Edward £400,000 in May 2014; a further £150,000 was spent in May 2015 installing new engines and navigation equipment.

The tax implications of the two gifts are considered in part 3 of this article.  Commercial matters would also have to be considered: particularly in relation to the introduction of a new shareholder in Adventure Ltd, a company controlled by Edward.

Before you read part 3, you should think through the headings that would be necessary in order to address the IHT and CGT implications of the proposed gifts and identify as many of the issues as you can.


You need to have a strong, well-structured knowledge of the IHT and CGT rules in order to deal with a question in the exam. You also need to be able to explain the potential tax implications of a transaction clearly and logically.

When addressing the tax issues you should stop and think before you start writing and note down briefly the points you intend to make. Then make sure that you make all of the points in the time available.

Written by a member of the ATX-UK examining team

The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.