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Where Taxpayers and Advisers Meet

Any taper relief on a CLT into trust ?

Joined:Mon Apr 03, 2017 12:58 pm
Any taper relief on a CLT into trust ?

Postby lizgreen333 » Thu Oct 19, 2017 2:24 pm

I have finally understood (thanks to this forum) that taper relief on gifts only applies if the sum total of the gifts (in the 7 years) EXCEEDs the available NRB.

Does this also apply to a CLT (a transfer that was made into a discretionary trust during the deceased's lifetime)?

Here is my position.
In June 2011 mother (settlor) placed £325K into a discretionary trust (in the form of an onshore bond, kind of investment).
And hoped to live 7 years more so that this sum would fall outside her estate.

Then :

In the 2013/14 tax year she gave away 60K
In the 2014/15 tax year she gave away 15K
In the 2015/16 tax year she gave away 17K
In the 2016/17 tax year she gave away 108K

(these are all over and above her annual IHT free entitlements, like 3K and £250 etc.)

So, Total gifts made in this period = £200K in addition to the CLT of £325k into the trust in 2011.

She died last month, 6 years and 3 months short of the 7 year mark since gifting into the trust.

The NRB due to her estate is 325 + 305 (of my father-also now dead) = 630

(I knowthe estate can also benefit from RNRB and TRNRB but I'm leaving those out of this equation, for simplicity, as form IHT400 actually sets them apart a little, and the end result is the same )

So my question is, to calculate how much of the £630k NRB is "used up" - do I add 325K to 200K = 525K ?

Leaving me only 630-525= 105K of NRB left to set against the remaining assets in the estate? :-(

If so, it would seem that the whole purpose of the CLT has become null and void, since the 7 year mark was not reached.

If the 325k does not enjoy any tapering "calculation" either, it seems for the sake of a few months, all this IHT planning came to nought.

Have I understood this correctly?

thanks for any advice

Joined:Fri May 16, 2014 3:47 pm

Re: Any taper relief on a CLT into trust ?

Postby AGoodman » Fri Oct 20, 2017 10:34 am

Correct. The key point is that the taper is applied to the tax rate - so the gifts all use the NRB and transferable NRB at 0% and taper is irrelevant.

Joined:Mon Apr 03, 2017 12:58 pm

Re: Any taper relief on a CLT into trust ?

Postby lizgreen333 » Fri Oct 20, 2017 5:54 pm

Many thanks indeed AGoodman. This seems a much misunderstood point.

It seems somewhat unfair that a gift given 6 years and 364 days before death counts "against you" just as much as though you'd given it last week. Ho hum.

Plenty of good firms abound, that assist and encourage us towards IHT planning and they often suggest CLTs into Trust as a good measure.
This is true but I personally feel not enough awareness is made, of the fact that (if you are within your NRB) 7 years must pass for this measure to be effective , and that that if you survive 1 week or 6 years and 51 weeks, after creating the Trust - the outcome is the same.
Thanks again

Joined:Tue Nov 23, 2021 10:24 am

Re: Any taper relief on a CLT into trust ?

Postby JPEP » Tue Nov 23, 2021 10:38 am

Hi Liz,

I know this is an old post, but I wanted to share my view in case you lost money.

My understanding is that taper relief DOES apply to CLT's in the same way as a potentially exempt gift (PET for short (which is a gift made outside of a trust.)) However, if it would result in a refund, then no refund of the entry charge would be payable. The additional charges would receive the taper relief though. Please take a look at the Inheritance Tax manual using this link (it's a very quick and easy read):

Although late to the table with the opinion, I hope it is still of value and still just within the 4 year limit of the date the last payment of tax was made to be able to reclaim it.

Good luck!

Joined:Wed Aug 06, 2008 3:25 pm

Re: Any taper relief on a CLT into trust ?

Postby maths » Tue Nov 23, 2021 7:44 pm

Where death of a donor occurs within 7 years of a lifetime gift (be it a PET or CLT) then taper relief may be in point.

However, what is frequently misunderstood is that taper relief does not affect the amount of the PET/CLT but the IHT charged thereon.

Tape relief can thus potentially reduce the amount of IHT on the PET/CLT.

However, it may be that there is no IHT payable on the PET/CLT because, for example, the amount of the PET/CLT falls within the donor's nil rate band.In which case tape relief is of no help.

For example. Donor (X) makes lifetime gift of £300,000 to another individual Y. X has made no prior lifetime gifts. Thus, the gift to Y falls within X's NRB of £325,000 and is thus charged at 0%. So even if taper relief applies (at say 60%) it is applied to the 0% and 60% of 0% is 0.

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