IHT - Tapering relief for a married couple

[ARW1990]

Hello,

Could someone please help me understand how tapering relief works in the below example. Apologies if this question has already been asked, couldn’t find the information I required.

If a married couple give £50k to a child and the husband dies within the 7 year limit but the wife survives beyond the 7 year limit then what would the tapering relief be? Do the tax rules stipulate that tapering will cease at the death of the husband or would the £50k be exempt from IHT given the wife has lived beyond the 7 year threshold?

Thanks in advance.

Alex

[AGoodman]

None. Taper applies to the rate of tax and the rate of tax is zero for the first £325k. Gifts are counted first.

If it was truly a joint gift then the husband’s estate would be increased by £25k. The £25k gift by W would become exempt after 7 years.

The fact H & W are married would be irrelevant.

[ARW1990]

Thanks for your reply. On your second paragraph, this is kind of the key part of my question.

The gift will either go on the husband’s estate or become exempt assuming the wife lives longer than 7 years. If a couple are married and have joint assets then I am trying to ascertain who the gift comes from? If the wife says it is a gift from her and declares it as the younger of the two (and the more likely to live beyond the 7 year threshold) would this not be frowned upon and effectively disallowed by the authorities?

[Lee Young]

Who the gift is from is a question of fact. If paid from a joint account then it is a joint gift - if from a sole account then on the face of it the gift is by that person alone.

[ARW1990]

Thanks for your reply. Appreciate that the origination of the funds will initially determine who gifted the money. However, that would imply that the younger person in a married couple could just assert that any gifts were from them in order to give the highest probability of living longer than 7 years. I would have expected the tax system to be a little bit more sophisticated here and see through such an act.

[AGoodman]

No, it's not based on assertions, it's based on who in fact made the gift. If from a joint account, it's a joint gift and so treated as 50/50. If from a sole account, it is a gift from the accountholder.

The UK tax system taxes individuals, it does not generally treat a married couple as a single unit. We do not have marital property regimes as they do in much of the world.

It allows the older spouse to make an exempt gift to the younger spouse, so the younger can then make a gift to their children. With some limitations, that is just how it works.