Cash gift - surviving seven years

Slinky

I've seen lots of references to situations of people giving money to their family to avoid inheritance tax on the gift if they survive 7 years beyond the date of the gift.

Is there a sliding scale involved here or is it giver survives 7 years the gift is outside the scale of inheritance tax or if they die a day short of 7 years the whole of the gift forms part of the estate to be taxed?

Thanks in anticipation of advice.

Andy_L

There's a thing called taper relief
http://www.hmrc.gov.uk/cto/customerguide/page13-1.htm

The amount of tax can be reduced down to 20% of the calculated value

Slinky

Thanks Andy, am I right in drawing the conclusion from this that any tax due would then be paid from the remaining estate rather than 'clawing back' some of the gift?

Willman_Rodders

Hi Slinky,

As Andy says there is a sliding scale of taper relief. As a former financial adviser I was surprised to find that the sliding scale only applies where the amount gifted exceeds the Nil-Rate Band allowance.

So, as an example the Nil rate band allowance is presently £300,000. If a gift of £300,001 was made today then the clock starts ticking, and after 3 years taper relief reduces provides reduced rate of 80% of the IHT rate.

If the gift was only 299,999 then the 7 year clock starts ticking, but no taper relief applies in the meantime. Only after 7 years does the gift fall outside of IHT

Hope the above helps.

Willman_Rodders

Hi Slinky,

Just returning to your point about who is liable for the tax, if the tax is due.

In the case of the tax due on a gift made within 7 years of the donor's death the donee (ie the person receiving the gift) is primarily responsible for the tax due. The personal representitives of the deceased are liable if the tax remains unpaid after the deceased's death.

Usually this position would be covered though in a professionally drafted will so that the residue of the deceased's estate pays the tax.

digerati

Often a special seven-year term insurance policy is taken out to cover any potential gift tax. The covered amount is reduced each year as the taper kicks in.