Reliefs

Taper Relief

If the total chargeable value of all the gifts made between three and seven years before a death is more than the threshold at death, then taper relief is due. The relief reduces the amount of tax payable on a gift, not the value of the gift itself.

Example 1

Mr A made a gift of £250,000 on 1 March 2006. He died on 1 May 2009.
The inheritance tax threshold at the date of death was £325,000.
The gift is less than the IHT threshold so there is no tax charge on the gift itself and therefore taper relief is not available

Example 2

Mr B made a gift of £350,000 on 1 March 2006. He died on 1 May 2009.
The inheritance tax threshold at the date of death was £325,000.
The gift exceeds the threshold by £25,000
Full rate of tax on the gift: 40% x £25,000 = £10,000
The gift is within 3 to 4 years of the 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.

Business Property Relief

Some business assets that have been owned by an individual for at least 2 years can qualify for business property relief of up to 100%.

Assets to which this applies include:

• a business or an interest in a business (such as a partner in a partnership) (100% relief)
• unquoted shares (including shares traded on the Unlisted Securities Market (USM shares) or the Alternative Investment Market (AIM shares). Shares that are listed on a recognised overseas stock exchange are quoted for IHT purposes, even if they are also traded in the AIM or USM. (100% relief)
• a holding of shares or securities owned by the transferor, which are fully listed on a recognised Stock Exchange, which themselves or with other listed shares or securities give control of a company (50% relief)
• land, buildings, plant or machinery owned by a partner or controlling shareholder and used wholly or mainly in the business of the partnership or company immediately before the transfer (This applies only if the partnership interest or shareholding would itself, if it were transferred, qualify for business relief.) (50% relief)
• any land, or buildings, machinery or plant which was used wholly or mainly for the purpose of a business carried on by the transferor and was settled property in which the transferor was beneficially entitled to an interest in possession and used in the transferor’s business. (50% relief)

There are a number of collective investments available which invest in AIM shares or and companies eligible for Business Property Relief, and as a result the investments are not subject to IHT on the death of the investor if they have been held for at least 2 years. Such investments can provide an effective way for individuals to reduce their liability to IHT in a short space of time, however because this is an investment in smaller companies, they are likely to be more volatile and as such may not be suitable in all cases.

Agricultural Property Relief

Agricultural Property Relief is available on property owned and occupied by the individual for agricultural purposes for the two years immediately before the transfer, or owned by the individual throughout the seven years immediately before the transfer and throughout that period has been occupied for agricultural purposes (whether by the owner or by someone else). Relief is available at up to 100%.

The following are assets that can benefit from Agricultural Property Relief;

• agricultural land or pasture
• any farmhouses, cottages or buildings, which are of a character appropriate to the property
• woodlands and buildings used for intensive rearing of livestock (or fish), if those woodlands or buildings are occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture (where woodlands are agricultural property, however, they are not eligible for the woodlands relief)
• growing crops, when transferred with the land
• stud farms engaged in the breeding and rearing of horses and land used for grazing associated with those activities
• land and buildings used in the cultivation of short rotation coppice, for transfers on or after 6 April 1995. More on short rotation coppice.
• any land within a habitat scheme for transfers on or after 26 November 1996. (Habitat schemes were introduced in the UK to help preserve the nature of the countryside and to maintain a habitat for wild animals and birds. These schemes tend to ban agricultural production for lengthy periods.)