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HMRC internal manual

Inheritance Tax Manual

- Lifetime transfers: the charge to tax: additional charges: the additional tax payable (example 2)

Tony makes a gift of £375,000 to a discretionary trust in May 2007.

There were no other transfers in the preceding seven years.

Tony died in February 2012.

The tax immediately payable on the transfer is:

Capital value = £375,000
   
Less IHT nil rate band at date of transfer - £300,000
  = £75,000
Tax at 20% (half death rate) on £75,000 = £15,000

The tax on the transfer recalculated because of the death is:

Capital value = £375,000
   
Less IHT nil rate band at date of transfer - £325,000
  = £50,000
Tax at 40% (half death rate) on £50,000 = £20,000

However, as the transfer was more than four, but not less than five years before the death, taper relief (IHTM14575) applies and the tax is reduced to £20,000 x 60% = £12,000.

As the recalculated tax of £12,000 is less than the tax already paid (£15,000), no further tax is payable.

The difference of £3,000 is not repayable.