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Where Taxpayers and Advisers Meet

Gifts made using tapered relief

chris7560
Posts:4
Joined:Mon Jan 17, 2022 5:38 pm
Gifts made using tapered relief

Postby chris7560 » Mon Jan 17, 2022 5:43 pm

Scenarios:
The person who has died was not married or in a civil partnership. The estate value at death is £500K which does not include property hence only the NRB tax-free threshold of £325K can be used. The gift was made 3.5 years before death and no other gifts were made. What is the IHT tax liability in either example?

1/ A gift of 100K was made. The NRB allowance applied to the estate is £225K (325-100). The IHT tax will be based on 500K – 225K = 275K. Is the IHT tax 40% applied to the whole 275K or 100K at 32% (taper relief) and 175K at 40%?

2/ A gift of 375K was made. The NRB allowance to the applied to the estate is zero as used up by the 375K gift. The 50K over the 325K has 32% applied and the remaining estate value of 500K has 40% applied?

Is the taper relief only ever applied to the total value of gifts above 325K before death?

AGoodman
Posts:1417
Joined:Fri May 16, 2014 3:47 pm

Re: Gifts made using tapered relief

Postby AGoodman » Fri Jan 21, 2022 11:17 am

Yes, taper only applies where the gifts are in excess of the nil rate band. It's a bit of a swizz.

In 1) the tax is 40% of £275k
In 2) the recipient is subject to tax at £50k * 32%. The estate is taxed at 40% of £500k (as you said). If the will provides that the estate should pay tax on the gift, the gift also needs to be grossed up.

chris7560
Posts:4
Joined:Mon Jan 17, 2022 5:38 pm

Re: Gifts made using tapered relief

Postby chris7560 » Fri Jan 21, 2022 3:34 pm

Thanks for you response.

Further query on No 2 with regards the grossing up of the gift. If the will states that the estate should pay the tax and not recipient then what is grossing up? I can only assume that the tax due of £50K x 32% = £16K is added to the estate IHT tax of £500K x 40% = 200K. Total tax to pay by estate = £216K ?


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