Where both fall in value relief and taper relief are due, you should follow the calculations in the following example.
Gifts made by the deceased
| Date of gift | Asset gifted | Value at date of gift | Amount and type of exemption claimed | Net value after exemptions |
|---|---|---|---|---|
| 14/10/99 |
74 Acacia Gardens | 100,000 | 6,000 (annual exemptions 99/00 and 98/99) | 94,000 |
| 16/01/01 | Cash | 200,000 | 3,000 (annual exemption 00/01) | 197,000 |
| 17/04/02 | 18 Lime Avenue Fall in value relief claimed, value at the date of death £130,000 |
150,000 | 6,000 (annual exemption 02/03 and 2001/02) | 144,000 |
The deceased died on 14 July 2005. You need to go through the following calculations.
First gift 14 October 1999
The chargeable amount of the gift was £94,000. The tax threshold to apply is the threshold at death (£275,000). As the gift is below the threshold, there is no tax to pay on this gift so there can be no taper relief.
If the market value of the property had fallen between the date of gift and the date of death to, say £80,000, there would be no benefit in claiming fall in value relief because the gift is below the threshold.
The value that cumulates with all other transfers remains at £94,000.
Second gift 16 January 2001
The chargeable value of
the gift was £197,000. The first gift must be added to it to establish
the total value (£291,000) on which tax is charged. The tax threshold
to apply is the threshold at death (£275,000). The tax payable on
the second gift is
| Taxable value | £291,000 |
|
less threshold |
- £275,000 |
|
Chargeable value |
£16,000 |
|
Tax at 40% |
£6,400 |
The second gift was made more than four, but less than five years before the deceased died so taper relief is due at 40%. 40% of £6,400 is £2,560, so the tax to be paid is £6,400 – 2,560 = £3,840.
Third gift 17 April 2002
The chargeable amount of the gift was £144,000. The first two gifts must be added to it to establish the total value (£435,000) on which tax is charged. The tax threshold to apply is the threshold at death (£275,000). The tax payable on the third gift is
| Taxable value | £435,000 |
|
Less fall in value relief (150,000 – 130,000
) |
- £20,000 |
|
Less threshold |
- £275,000 |
|
| Chargeable value | £184,000 |
|
| Tax at 40% | £56,000 |
|
Less tax on second gift |
- £6,400 |
|
Tax to pay |
£49,600 |
The third gift was made more than three, but less than four years before the deceased died so taper relief is due at 20%. 20% of £49,600 is £9,920, so the tax to be paid is £49,600 – 9,920 = £39,680.
Fall in value relief has been deducted in working out the tax that is payable on the third gift, but it does not reduce the value of the gifts that are added to the estate at death. This remains at £435,000.
