Inheritance Tax (IHT), Potentially Exempt Transfer (PET) and the 7-Year Rule

mensor

I have a situation. My father has recently died, my mother died six years ago. They sold their home and gave the proceeds to the grandchildren five and half years ago, total of £500k. Remaining estate value approx £250k. Joint NRB of £650k is exceeded. However it would appear that the gift is netted off the NRB first, leaving £150k RNRB, and hence £60k IHT. So, what happened to the Taper Relief? Vanished! If the remaining estate of £250k was netted off the NRB first, and then the gift, the resultant £150k would attract 16% tax instead of 40%, hence £24k tax. Am I correct? What is the point of taper relief? 

unkle

mensor said:

I have a situation. My father has recently died, my mother died six years ago. They sold their home and gave the proceeds to the grandchildren five and half years ago, total of £500k. Remaining estate value approx £250k. Joint NRB of £650k is exceeded. However it would appear that the gift is netted off the NRB first, leaving £150k RNRB, and hence £60k IHT. So, what happened to the Taper Relief? Vanished! If the remaining estate of £250k was netted off the NRB first, and then the gift, the resultant £150k would attract 16% tax instead of 40%, hence £24k tax. Am I correct? What is the point of taper relief? 

I'm afraid it is dealt with in order. Many don't realise that for IHT.
So the gifts use up the nil rate band first, you can't choose which bit of the estate does - re property, did they buy another house? Go into a home?
Is there any carry over allowance from your mother? Or was that used?

EDIT: the point of taper relief only really applies if the PET is greater than the Tax Free allowance and then only for the part above that.

getmore4less

unkle said:

mensor said:

I have a situation. My father has recently died, my mother died six years ago. They sold their home and gave the proceeds to the grandchildren five and half years ago, total of £500k. Remaining estate value approx £250k. Joint NRB of £650k is exceeded. However it would appear that the gift is netted off the NRB first, leaving £150k RNRB, and hence £60k IHT. So, what happened to the Taper Relief? Vanished! If the remaining estate of £250k was netted off the NRB first, and then the gift, the resultant £150k would attract 16% tax instead of 40%, hence £24k tax. Am I correct? What is the point of taper relief? 

I'm afraid it is dealt with in order. Many don't realise that for IHT.
So the gifts use up the nil rate band first, you can't choose which bit of the estate does - re property, did they buy another house? Go into a home?
Is there any carry over allowance from your mother? Or was that used?

EDIT: the point of taper relief only really applies if the PET is greater than the Tax Free allowance and then only for the part above that.

Depending on when five and half years ago was  there may be transferable and regular RNRB due to downsizing
this seems to be the key date 

Downsizing before 6 April 2017
Where the downsizing occurs on or after 8 July 2015, but before 6 April 2017, you treat the maximum available RNRB at that time as £100,000.

The numbers look wrong 

£500k gift £650k NRB leaves £150k of a NRB  against a £250k estate leaves £100k @ 40% 

Keep_pedalling

What was the exact date they disposed of their home? If it was after the 8th July 2015 the the RNRB should still be available.

mensor

Keep_pedalling said:

What was the exact date they disposed of their home? If it was after the 8th July 2015 the the RNRB should still be available.

I have looked back and the sale of the house was 9th Feb 2015, but the gifts were made to the grandchildren on 16th August 2015.

Keep_pedalling

mensor said:

Keep_pedalling said:

What was the exact date they disposed of their home? If it was after the 8th July 2015 the the RNRB should still be available.

I have looked back and the sale of the house was 9th Feb 2015, but the gifts were made to the grandchildren on 16th August 2015.

It is the date of the sale that matters, so it looks like the RNRB has been lost, as it was not even announced at the time. Presuming it was a joint gift to the children then each of then used up  £250k of their NRB allowance,so only £150k left in total, which thanks to very bad timing leaves your father’s estate with a £40k IHT bill.