Taper relief IHT

Keep_pedalling

castle96 said:

Me again. Many thanks folks for bearing with me. Just to ensure I have fully understood/documented. Please work out/confirm, my estates current IHT liability for me, assuming I snuff it today - MANY THANKS

Divorced. Sole owner of house

ESTATE:

House £450
Cash   £225
        ---------
          £675      All to be split equally between 3 sons. (Q - I don't have to leave "the house" to them specifically to
                        qualify for the £175 RNRB, do I ? It's 'value' included in my total Estate is the same thing?)

In 3/2020, I gave each son £20k, so 3-4 yrs ago.


Tax due and calc.   ...........

So if you died tonight your estate would have an IHT liability of £94k. If you gave away another £175k you could avoid IHT if you live another 7 years and you could cover an unfortunate early demise by taking out term insurance that would pay out £175k  to cover the tax. 

Jeremy535897

Keep_pedalling said:

castle96 said:

Me again. Many thanks folks for bearing with me. Just to ensure I have fully understood/documented. Please work out/confirm, my estates current IHT liability for me, assuming I snuff it today - MANY THANKS

Divorced. Sole owner of house

ESTATE:

House £450
Cash   £225
        ---------
          £675      All to be split equally between 3 sons. (Q - I don't have to leave "the house" to them specifically to
                        qualify for the £175 RNRB, do I ? It's 'value' included in my total Estate is the same thing?)

In 3/2020, I gave each son £20k, so 3-4 yrs ago.


Tax due and calc.   ...........

So if you died tonight your estate would have an IHT liability of £94k. If you gave away another £175k you could avoid IHT if you live another 7 years and you could cover an unfortunate early demise by taking out term insurance that would pay out £175k  to cover the tax. 

You are overlooking that OP has stated that two years' annual exemptions were available, so the PETs were £54,000. The inheritance tax liability would therefore be £91,600. Of course that is assuming the estimates given of the value of the estate are precisely accurate.

castle96

NannaH said:

So if you give £50k as a gift and die 6 years and 11 months afterwards,  that £50k fully counts as part of your estate? (Minus the £3k + £3k previous year’s allowance)  

Well I never,  I thought the taper counted for any amount. 

So did all of my poll ! Seems amazing that you have to gift £325K before TAPER RELIEF KICKS IN ! vERY FEW WOULD HAVE THAT SORT OF excess cash, plus enough to still live on for themselves

af1963

The "taper relief" is not tapering the value of the gifts, it's tapering the tax rate payable on them. If they fall within the IHT nil rate band, there is no tax to taper.

NannaH

Well yes,  but for anyone tottering on the brink of IHT territory,  which is fairly easy given property values and lots of single older people,  you can see why the clarification is important. 

It’s not an issue for me/us as our house will never come close to IHT territory, especially after the 1st death,  and our life insurance is written in trust and if claimed by one of us , would be spent before pensions, as long as pensions are kept out of estates/IHT. 

Albermarle

castle96 said:

NannaH said:

So if you give £50k as a gift and die 6 years and 11 months afterwards,  that £50k fully counts as part of your estate? (Minus the £3k + £3k previous year’s allowance)  

Well I never,  I thought the taper counted for any amount. 

So did all of my poll ! Seems amazing that you have to gift £325K before TAPER RELIEF KICKS IN ! vERY FEW WOULD HAVE THAT SORT OF excess cash, plus enough to still live on for themselves

It also amazing that articles on the subject, such as in the Daily Telegraph ( on line as well), make a big deal of taper relief, when it only applies in relatively rare circumstances ( because as you say not many will be able to give away more than £325K ) and this leads the reader to misunderstand the rules.
In fact the last DT article I saw on the subject, it was clear that the writer had misunderstood them as well.
So it is a very widespread misconception.

uknick

Albermarle said:

castle96 said:

NannaH said:

So if you give £50k as a gift and die 6 years and 11 months afterwards,  that £50k fully counts as part of your estate? (Minus the £3k + £3k previous year’s allowance)  

Well I never,  I thought the taper counted for any amount. 

So did all of my poll ! Seems amazing that you have to gift £325K before TAPER RELIEF KICKS IN ! vERY FEW WOULD HAVE THAT SORT OF excess cash, plus enough to still live on for themselves

It also amazing that articles on the subject, such as in the Daily Telegraph ( on line as well), make a big deal of taper relief, when it only applies in relatively rare circumstances ( because as you say not many will be able to give away more than £325K ) and this leads the reader to misunderstand the rules.
In fact the last DT article I saw on the subject, it was clear that the writer had misunderstood them as well.
So it is a very widespread misconception.

IHT is only charged on a relatively small amount of estates in the UK.  According to HMRC, in 2020-21 it was about 27,000 estates or about 4% of deaths.  I'm going to assume the majority of these are in the South East of England due to property prices.  Therefore, taper relief is even rarer than you might think.

The media might write a lot of articles about IHT but in reality very few people in the country have to deal with it.

Albermarle

The media might write a lot of articles about IHT but in reality very few people in the country have to deal with it.
Absolutely true. I am never quite sure why the 'Death Tax' appears to be so unpopular amongst people who will never have to pay it !

NannaH

I imagine most people see the headline of £325k and panic if their house is anywhere close to that,  forgetting that they own it jointly or TiC and not understanding nil rate bands etc.

I admit to knowing pretty much nothing before doing the probate for my late FiL.   I educated myself ( not thoroughly enough obviously 🙄)
 about IHT even though his estate was under the limit. 

castle96

How to value an estate for Inheritance Tax and report its value: Estimate the estate’s value - GOV.UK (www.gov.uk)

Even the Gov guidance is wrong ! I put in NIL gifts in the last 7 yrs and £326k gifts. The calculator does not make any reference to Taper relief, or various yrs within the 7. It merelyincludes the £326 (1k above "you must have given away > £325k" ) in your total estate. Martin Lewis should include this misheld conception in his show one day