IHT Question

Ciprico

If  a father made a gift to a child from a joint bank account (shared with his wife), but only survived the gift by 2 years, and with the wife still going strong, would I be right in assuming 50% is liable for IHT after the taper relief and IHT allowance are taken into account.

If he made same gift to another child, but from his sole account, would the IHT liabilities be different

If the child refused any other inheritance (through deed of variation) - would that have any impact or would be liability on original gift remain the same....

Many thanks for any comments

Jeremy535897

There would be no taper relief. The gift would only be chargeable to the extent to which half of it exceeded the nil rate band (together with any other gifts in the previous seven years). In the second case, all the gift would be treated in that way. The liability on each gift, if any, might depend on the order they were made. Varying the estate would be irrelevant to the tax arising as a result of the gifts, although it might reduce the tax on the estate.

Ciprico

Jeremy, thank you for your reply.

Could you explain why there would be no taper relief...?

I understood taper relief was specifically for this situation, ie a gift received within 7 years of death was pro-rata'd

Jeremy535897

Taper relief only applies when a potentially exempt transfer fails due to the donor dying within seven years of making the gift, and as a result tax becomes chargeable on the gift. That only happens when the gift (of itself or with earlier gifts) is so big (over the inheritance tax nil rate band) that a charge to tax arises. As an example, if someone makes a PET of £500,000 and dies within seven years, tax is payable on the gift because the failed PET exceeds the nil rate band of £325,000. If the gift had been £300,000, and within the nil rate band, no tax would be payable on the gift as a result of the donor's death (and so there is nothing to taper), but the donor's estate would pay more tax because £300,000 of the nil rate band had already been used.

Unfortunately, taper relief, even where tax does become payable as a result of the donor's death, only starts if the donor made the gift 3 or more years before death, and you talked of a 2 year period.

Keep_pedalling

How big were the gifts and how much has he left to anyone other than his wife? If the total is less than his NRB (£325k) there will be no IHT to pay, it will just reduce the amount of his allowance that can be transferred to her estate on her death.