Tax on a gift

Bluefish01

In 2010 my Uncle gifted me £75,000 to enable me to complete the purchase of a property. He died in 2017 just two months before the 7-year gift rule expired.  My solicitor said I would have to pay tax on the whole amount and I paid 40% to the tax man.  I have since learned of the taper rule.  Does anyone know if the amount of tax due should have been tapered down instead of the 40% as there were only two months to go?    My solicitor said everyone reads this rule wrong but I am now wondering if she has.  Many thanks, Chris

HappyHarry

Bluefish01 said:

In 2010 my Uncle gifted me £75,000 to enable me to complete the purchase of a property. He died in 2017 just two months before the 7-year gift rule expired.  My solicitor said I would have to pay tax on the whole amount and I paid 40% to the tax man.  I have since learned of the taper rule.  Does anyone know if the amount of tax due should have been tapered down instead of the 40% as there were only two months to go?    My solicitor said everyone reads this rule wrong but I am now wondering if she has.  Many thanks, Chris

This sounds very strange. If your uncle has made gifts prior to his death in excess of the Nil Rate Band, then the gift to you could be due IHT, and it might be you that pays it at a reduced (tapered) rate. However, that would require your uncle having used up his Nil Rate Band in gifts made before he gifted to you, and unless he set up a trust of some kind in previous years, the he would have had to have gifted £325000 to others in the two months prior to your gift - i.e. in time to get caught by the seven year rule.

Why has your solicitor commented on any tax due on  this gift? I can understand your uncle's executor's commenting, or HMRC but not your solicitor.

tacpot12

This webpage should provide the details you need to work out what is correct: Inheritance tax (IHT) taper relief on gifts explained - Money To The Masses

Bluefish01

I was the executor and I used my uncle's solicitor to execute his will and tie up the estate.  He had made no gifts to anyone else in the preceding years before his death, nor were there any trust funds.  I did receive the full inheritance tax allowance calculated. The amount I paid in inheritance tax, included 40% on the gift given to me in 2010.  Looking into today's rates it looks like I should have only paid 16% in the final year, so I am confused. Thank you for your comments

HappyHarry

The estate should have paid 40% IHT on anything above the value of the Nil Rate Band. The taxable estate comprises of the value of the estate eat time of death and any non-exempt gifts made in the last seven years.

Taper relief only applies to the value of gifts in excess of the nil rate band.

Else the nil rate band is reduced by the amount of the gifts. 

Your initial post was confusing as you said that you had to pay the IHT, when in fact, it was your uncle's estate that had to pay the IHT.

bobster2

As HappyHarry has explained - you didn't pay IHT as the recipient of a gift, you paid as the executor of the estate. Imagine the gift had gone to someone completely different. You would have still paid the IHT as executor from the estate funds (you wouldn't have been able to ask the gift recipient to pay).

However, when reporting the gift you should have been able to take off an annual exemption (£3000) for the year it was gifted - so the net value should only have been £72,000.

Bluefish01

Thank you fir your responses. I think I have a clearer understanding now. Apologies for not making it clear in original post

Keep_pedalling

Bluefish01 said:

I was the executor and I used my uncle's solicitor to execute his will and tie up the estate.  He had made no gifts to anyone else in the preceding years before his death, nor were there any trust funds.  I did receive the full inheritance tax allowance calculated. The amount I paid in inheritance tax, included 40% on the gift given to me in 2010.  Looking into today's rates it looks like I should have only paid 16% in the final year, so I am confused. Thank you for your comments

A lot of people get confused by this mainly due to how poorly the .gov website explains it. If he had gifted you over £325k then taper relief would apply but only to the portion of the gift over that value.