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TaxRobin
TaxRobin, Tax Consultant
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Experience:  International tax
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IHT question. In order to obtain taper relief, do I need to

Resolved Question:

IHT question.
In order to obtain taper relief, do I need to have made enough PETs before my death to absorb my325k, or simply have an estate large enough to absorb the 325k leaving taper relief to apply to the PETS?
If I am a widow and have my wife's 325k is this also taken into account before taper relief applies?
Is the 325k used against PETs first leaving the rest of the estate to suffer tax at the full40%, which means that taper relief is no use unless more than 325k (or even 650k) of PETs
Very ambiguous!!
many thanks
BOB
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello,
First you look at what gifts are liable for IHT. Those gifts made more than 7 years ago would not be needed.
If the total value of the gifts that you make is more than the Inheritance Tax threshold (£325,000 in 2014 to 15 tax year), tax will be due on all of the gifts that brought the total over the threshold.
This would be where Taper Relief would assist. Gifts always use up the Inheritance Tax threshold first before the value of any other assets or property that you left.
HMRC has listed the steps to follow for calculating what would be included:
Step 1: list in date order all of the gifts the deceased made in the last seven years that aren't exempt, starting with the oldest first
Step 2: keep a running total of their values
Step 3: when the running total exceeds the threshold, that gift - or the part of it that took the total over the threshold - and all gifts made after it will be subject to Inheritance Tax
What this means is that the gifts you have made are added together then subtracted. If you have not gone over the amount then all those gifts are exempt and then the remaining estate is looked at.
Inheritance Tax is charged on gifts at 40%. But if you died between 3 and 7 years of making a gift, you can apply the 'Taper Relief' to the amount of Inheritance Tax due to reduce the amount payable.
The taper relief is useful should you pass before the applicable time.
The Inheritance Tax threshold is used for the year of death.
While taper relief may reduce tax on PETs if you die within seven years of making them, it won’t reduce the tax due on your estate.
It can be confusing and seem to be of no relief but if dealing with a person that has made large gifts and the PET years have not expired the Taper can assist in reducing some of the tax.
Customer: replied 2 years ago.

Thanks. So to be clear. If my friend has made gifts of say 300k 4 years ago and now dies with an estate of 925k, the position is as follows-

Total gifts in last 7 years 300

Remaining estate 925

total estate 1225

less IHT allowance 325

subject to IHT 900

IHT at 40% 360

Therefore no taper relief applies to the gifts as they are used first to absorb the IHT allowance? Is this correct?

As his wife died earlier this year and left her assets to him, he has her 325k as well which reduces his taxable est to 575 and tax of 230k so no benefit from taper relief at all!!!!

Obviously needs some advice!!

Expert:  TaxRobin replied 2 years ago.
Hello,
The taper relief would apply to the gift.
Your friend made a gift of £300,000 in 2010. He died 2014. The Inheritance Tax threshold for the year he died is £325,000.
Following the steps to work out the Inheritance Tax would be:
Step 1: take away the threshold from the value of the gift: £325,000 − £300,000 = £25,000. So Inheritance Tax is due on £25,000
Step 2: work out the Inheritance Tax at 40%: £25,000 × 40% = £10,000
Step 3: the gift was made within 3 to 4 years of death. So Taper Relief at 20% is allowed: £10,000 × 20% = £2,000
Step 4: take away the Taper Relief from the full tax charge: £10,000 − £2,000 = £8,000
Taper Relief reduces the amount of tax payable from £10,000 to £8,000.
About the spouse, yes, if someone leaves everything they own to their surviving spouse or civil partner it's exempt from Inheritance Tax. It also means they haven't used any of their own Inheritance Tax threshold. This can be used to increase the Inheritance Tax threshold of the second spouse.
The remaining 925 can have the threshold applied of the spouse. This would reduce it to 600,000. 240000 plus the 8000 = 608,000
Customer: replied 2 years ago.

Thanks but your example is wrong! The gift was 300k not 325k as shown in your example?

Also 240k plus 8k is 248k not the 608k at the end of your example!!!!!!!!!!!!!!!!!

Expert:  TaxRobin replied 2 years ago.
Terribly sorry for that typo, but I hope you can still see how taper relief works.
Customer: replied 2 years ago.

The typo at the end is not the problem.

The error re the value of the gift is though, as surely this changes everything.

As the gift of 300k is less than the allowance of 325k then there is no tax payable on the gift and my original problem that no taper relief is given as the gifts are offset against the allowance first remains!! It would therefore appear that unless someone gives lifetime gifts of more than their 325 allowance then no taper relief applies. Is this correct?

Expert:  TaxRobin replied 2 years ago.
Yes, that is correct. The taper relief is applied when gifts are more than the allowance. If the failed PET is well within the available nil-rate band, it does not itself have any IHT. There is no need to consider taper relief.
TaxRobin and other Tax Specialists are ready to help you

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