IHT, gifting and taper relief.

kipperman

In dealing with our late mum's estate I made the assumption that some cash gifts that she gave to her grandchildren over 5 years ago would attract taper relief. However HMRC have told me that this doesn't apply since the total value of gifts made is less than the NRB available- in this case £650k. Whilst I have no reason to doubt this, is there any form of "logic" to why this is the case? Point being that you would have to do some fairly heavy duty gifting to attract the relief, and even then my understanding is that it is only the element over the NRB that attracts the relief. Or am I missing something crucial here?

bobster2

Taper relief does not apply until the value of gifts exceeds the nil rate band. 

The way to think of this is that essentially gifts use up the NRB first - and it's only when they exceed the NRB that there is any tax directly attributable to the gift (that's the logic) and it's only in those circumstances that taper relief comes into play.

Keep_pedalling

Pre-death gifts are always are always the first thing that the NRB gets applied to and when that is used up any available transferable NRB goes any remaining gifts. TR can then be claimed if there are any gifts not covered by the two NRBs. So yes there are very few estates that can take advance of it. Even if you mother gave more away in the 3 years before death it could still not be used as the gifts that take it above the NRBs is when the clock starts ticking.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14611

kipperman

Thanks both - Now that I look more closely at their calculation, I can see that the gifts use up the NRB first. Just seems a commonly held misconception  that  once the gift is over 3 years old it will start to attract less IHT.

So essentially you have to survive the full  7 years after gifting to make it exempt unless you have gifted >£325k or possibly >£650k  and even then the pickings are somewhat slim.