IHT taper relief question

waveyjane
waveyjane Posts: 248
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edited 28 September 2023 at 5:15PM in Cutting tax
I understand that gifts made in the 7 years before death which total over £325K are subject to taper relief on the amount over that £325K. 

How does it work with gifts made by a deceased spouse though? So for example:

1. Husband & Wife make gifts in year 1 (but under £325K)
2. Husband dies 2 years later.
3. Wife make gifts a year later totalling over £325K

Does the Husband's half of the gift in year 1 (less allowances) form part of the total amount? Or does his death before 7 years reduce the taper, since his half will stay in the estate for her IHT?

In fact come to think of it, if Wife lives for over 7 years after the gift made in year 1, that gift will drop out of their estate earlier than the later gifts, so that would affect the size of the taper in later years. Hm. 


Comments

  • Keep_pedalling
    Keep_pedalling Posts: 16,232
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    edited 28 September 2023 at 10:30PM
    Assuming the original gift was a joint one, half the gift will eat into his NRB, the other half continues as a PET for her until the 7 years are up. The timing for taper relief would start from the time of the second gift.

    For example Mr and Mrs Smith make a joint gift of £200k in 2020. Mr Smith dies in 2021 and his NRB will reduced by £100k (for simplicity I am ignoring the annual exemption) 

    Mrs Smith makes a gift of £300k in 2022 taking her accumulative PET to £400k

    She then dies 3 years and 1 day later. Neither gift has dropped out of her estate but as survived over 3 years from the date of the second gist taper relief applies to the £75k over her NRB bringing the rate on this portion of the gift down to 32%.



  • waveyjane
    waveyjane Posts: 248
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    edited 29 September 2023 at 3:18PM
    The timing for taper relief would start from the time of the second gift.

    Thanks (and only if that second gift took the total above £325K)

    I don't quite understand "half the gift will eat into his NRB, the other half continues as a PET for her". Isn't that for when she dies (so her TRNB is lower for her)? The taper applies when the total gifts go above £325K - it does't relate to the NRB does it?


  • waveyjane said:
    The timing for taper relief would start from the time of the second gift.

    Thanks (and only if that second gift took the total above £325K)

    I don't quite understand "half the gift will eat into his NRB, the other half continues as a PET for her". Isn't that for when she dies (so her TRNB is lower for her)? The taper applies when the total gifts go above £325K - it does't relate to the NRB does it?


    If you get a joint gift from your parents then IHT purposes it is treated as getting half from each parent. 
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