Inheritance Tax & Taper Relief
Inheritance Tax & Taper Relief
Taper relief and its role in Estate Planning can often add confusion in how it works and when it applies. Taper relief applies where -
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A transfer value was made more than three years before the transferor's death.
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Inheritance Tax is due on the transfer i.e. the value of the gift is above the Inheritance Tax Nil Rate Band and exemptions available.
Taper relief does not reduce the value of the gift but reduces the amount of tax that is payable upon it.
The rates of taper relief are as follows -
| Time between Gift and Donor’s death | Taper Relief applied to tax due | Effective Rate of Gift |
| 0 – 3 years | 0% | 40% |
| 3 – 4 years | 20% | 32% |
| 4 – 5 years | 40% | 24% |
| 5 – 6 years | 60% | 16% |
| 6 – 7 years | 80% | 8% |
For example, Peter makes a gift of £100,000 to his son on 1st July 2016. Peter passed away on 5th November 2019 -
- Peter's Estate on death was £400,000 - above the Nil Rate Band
- This means the full value of the gift of £100,000 is taxable as the gift was made within seven years of the date of death
- Inheritance Tax is payable at 40% which equals £40,000
- However, three years have elapsed from the date of the gift which means Taper Relief of 20% applies
- This means that there is a reduction in tax of £8,000 (£40,000 x 20%)
- Inheritance Tax payable is now £32,000
As with any Estate Planning exercise, it is important to make record of the following -
- The amount gifted
- To whom the gift was made
- When the gift was made
If you have any queries regarding Inheritance Tax or Estate Planning, please do not hesitate to contact us.