I am puzzling over HMRC guidance on taper relief. Suppose someone makes a lifetime gift of £100,000, then dies six years later, leaving assets of £1M. HMRC would seem to suggest that, as the gift is less than the IHT threshold, it simply gets added to the other assets. So tax would be due on £1.1M less the £325,000 tax-free allowance, ie £775,000.
But this means that the same tax is due whether this person dies one day after making the gift, or six years and 364 days. Taper relief doesn't seem to do anything, except for really large lifetime gifts, which exceed the tax threshold.
Is this correct?
Related resources
Replies (9)
Please login or register to join the discussion.
Taper relief
Applies to the tax on the gift, so if there is no tax, you do not see any benefit of the taper relief.
However, you only have an NRB on death of £225,000, because £100,000 was used by the gift that occurred less than 7 years before death. So £875,000 is taxable at 40%.
Read the OP again
£1,000,000 less £225,000?
£1.1 million! That is £1,100,000 less £225,000, which is £875,000. N'est ce pas?
Taper relief
If the £100K gift is taken off the NRB band, it can't be added to the value of the estate as well!
It's either £1100K less £325K or £1000K less £225K, depending how you look at it.
Anyway, it seems bizarre that a lifetime gift of £10M would benefit from taper relief (because almost all of it is above the threshold), whereas a gift of £100K wouldn't. One law for the rich...?
There is no tax
on the gift in your example (assuming there were no gifts in the previous 7 years - but that is complicating it further) because it is less than the NRB.
If the donor dies within 7 years of making the gift, the gift 'uses' £100,000 of the NRB leaving £225,000 to be used against the death estate of £1,000,000.
Therefore dying within 7 years of making the gift effectively brings the value of the gift back into the estate (and therefore brings about an IHT charge to the estate).
The taper relief applies to the tax due on the gift, which in your case is nil.
Therefore - no taper relief.
Just one of those things.
Is how I see it!