IHTM14578 - 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 calculation of tax immediately payable on the transfer is:
| Description of the calculation components | Value of the calculation components |
|---|---|
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:
| Description of the calculation components | Value of the calculation components |
|---|---|
Capital value |
= £375,000 |
Less IHT nil rate band at date of death |
- £325,000 |
- |
= £50,000 |
Tax at 40% (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.