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Beginners’ Guides
Beginners’ guide to Inheritance Tax Planning
Taper Relief:
Taper relief applies where tax, or additional tax, becomes payable on your death in respect of gifts made during your lifetime. The relief works on a sliding scale. The relief is given against the amount of tax you’d have to pay rather than the value of the gift itself. The value of the gift is set when it’s given, not at the time of death.
| Years before death in which transfer made | Percentage of IHT payable |
|---|---|
| 3-4 | 80% |
| 4-5 | 60% |
| 5-6 | 40% |
| 6-7 | 20% |
For example:
- You’d made a non-exempt gift of £337,000 on 1 February 2005 and died on 20 June 2008.
- The IHT nil-rate threshold at the date of death was £312,000.
- The gift exceeds the threshold by £25,000
- Full rate of tax on the gift: 40% x £25,000 = £10,000
- The gift was made within 3 to 4 years of death, so taper relief at 20% is due.
- Taper relief: £10,000 x 20% = £2,000
- Revised tax charge: £10,000 - £2,000 = £8,000.
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