IHT on gifts - can exemption be carried forward from 8 yrs ago to 7 yrs ago?

Somerset_Alan

EDIT: Title edited to make clear I'm not talking about carrying forward for more than one year.

So gifts made each year can be shielded from inheritance tax using the £3,000 annual exemption. If it isn't all used, the unused portion of the annual exemption can be carried forward for one year.

Suppose I made a gift of £1,000 in April 2019, and no other gifts that year, and another gift of £6,500 in April 2020.

If I die tomorrow (March 2026), the April 2019 gift can be exempted using 2019's annual exemption. The unused £2,000 of the annual exemption can be carried forward, so that £5,000 of the April 2020 gift can also be exempted, leaving £1,500 to be taxed (at a reduced rate due to the tapering rule).

If I die in May 2026, the gift of April 2019 is no longer considered, as it is automatically exempted under the 7 year rule. But what happens to the unused annual exemption from that year?

Can I now carry forward £3,000, thus bringing my available exemption for 2020 to £6,000, so reducing the taxable balance of the April 2020 gift to £500?

Or does it work the other way, so that I have no annual exemption in 2019 and therefore nothing to carry forward, making £3,500 of my gift of April 2020 become taxable?

It seems perverse for survival a bit longer to make the tax liability go up. This doesn't seem to be covered by any of the examples given in the relevant pages of the .gov website.

I suppose the question could be stated as, "In the seventh year before the giver's death, is the annual exemption effectively £6,000 instead of £3,000?"

Keep_pedalling

You can only carry forward from the previous tax year, so the answer is no.

Somerset_Alan

https://forums.moneysavingexpert.com/discussion/comment/81917500#Comment_81917500

I know that, thanks. What I'm asking is whether - say the death occurs in the year 2028, so IHT is potentially payable on gifts from 2022 but not 2021 - can I can carry forward from 2021 to 2022?

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81920531#Comment_81920531

Sorry I misunderstood your question. Yes, if no gift was made in 21 you can carry forward that unused allowance into 22.

Albermarle

leaving £1,500 to be taxed (at a reduced rate due to the tapering rule).

The tapering rules are much misunderstood, not helped by info in Gov.uk not being very clear.

Tapering only applies once a gift(s) has used up your nil rate band. So only once you have given away £325K. Below that figure there is no tapering and any gift above the exemptions will be counted back into the estate 100% if you die within 7 years.