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Inheritance tax: If potentially exempt transfers “expire” after

Resolved Question:

Inheritance tax: If potentially exempt transfers “expire” after 7 years, does this ‘release’ the £3,000 annual exemption for use against gifts in the remainder of that tax year (or to carry forward to the next). e.g. death on 1st October 2014. Gifts made in 2007: £10, 000 on 1st May 2007 (“expired”) and £5,000 on 1st November 2007 (within 7 years). Are the non exempt gifts for 07/08 £5000 or £2,000 (£5000-£3000).
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question
I am Sam and I am one of the UK tax experts here on just Answer.
The £3000 exemption was available EVERY year - but can only be carried forward once - so the gift of £10,000 made stands alone for consideration of the potentially exempt transfer and cannot be linked in any way with the £3000 gift annual exemption.
So you have £10,000 made on 1st May 2007 - £5000 in Nov 2007 so on 1st October 2014 the £10,000 had achieved the full 7 years but the £5000 had not.
So the £5000 has to be added back into the state but will have taper relief applied to it -
Table here for the taper relief
Taper Relief reductions
Time between the date the gift was made and the date of death
3 to 4 years 20%
4 to 5 years 40%
5 to 6 years 60%
6 to 7 years 80%
I have also added the link to the HMRC website so you can see how this is worked out
http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm#4
Thanks
Sam
Customer: replied 2 years ago.

But surely, for that year the £3,000 would be set against the total gifts made? So if the £10,000 hadn't achieved the 7 years (e.g. death occurred on 20th April 2014) then the liability would be £10,000 + £5,000 - £3,000 = £12,000?

My question was whether the £3000 could be used against the £5,000 as the £10,000 had expired.

Expert:  Sam replied 2 years ago.
Hi
No - sadly noe the £3000 gift exemption stands alone - so if a further gift had in fact been made in that tax year - and it was £3000 or less - then it would be exempt, but this is an amount brought forward from a much earlier year, so is not constituted to be part of the annual gift exemption permitted.
So had the £10,000 not passed the 7 year mark, you would have £10,000 plus £5000 to be considered for Inheritance tax - then relevant taper relief applied against the Inheritance tax due
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13774
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