There is a very important misconception about the Taper Relief discount for Inheritance Tax. If you make a gift and survive 7 years it is usually exempt for Inheritance Tax. If you die within the 7 year period there is a discount on a sliding scale which is called Taper Relief. If you die in the first 3 years you get no discount. If you die the next year the tax is reduced from 40% to 32%. It is then reduced to 24%, 16% and if you die in year 6 it is reduced as low as 8%. That’s a huge saving. An article in a well-known quality newspaper shows the Taper Relief table but – and this is very important – it makes no mention of a catch. The problem is that most gifts don’t get any discount even if you die the day before the 7 years are up. The reason is that the discount is calculated on the tax and not on the gift. Let me explain.
Suppose you make a gift of £300,000. You die 6 years later. On the Taper Relief table you would qualify for a discount of 80%. But the gift is not reduced by 80%. It’s only the tax which is reduced and there is no tax if the gift is below your Nil Rate Band which is currently £325,000.
So a gift of even £300,000 suffers no IHT and so the Taper Relief discount is zero.
This does not mean that you avoid the IHT on the gift. The gift uses up most of your Nil Rate Band allowance on death so that the estate (not whoever got the gift) pays the IHT. So the Government still gets the IHT but you don’t get the Taper Relief discount.
It follows that it is vitally important to know how this affects you. If you are a couple it is important to decide who should make the gift. Do you each make a gift, or does only one of you make the whole gift and if so which one? This involves careful judgements but getting it wrong can cost you a fortune.
We provide our expert IHT advice service to clients throughout England, Wales and Scotland. In an average month we see about 10 clients. Their total assets are about £15.5M. Their total IHT liability is about £4.1M and our advice can save them about £2.8M. That’s just in one month.
So why not contact us. Remember everyone’s circumstances are different and general advice is not much use. You need to have detailed advice from advisors you can trust.
So why not arrange a chat with one of our Consultants.
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McClure Solicitors in association with McClure Wealth Management