In what order should reliefs and exemptions be applied for IHT?

The chosen answer is the most accurate because it reflects the hierarchical order in which reliefs and exemptions for Inheritance Tax (IHT) should be applied. When calculating the IHT on an estate, it is essential to start with reliefs and exemptions that have the most significant impact on reducing the taxable estate.

Beginning with exempt gifts is crucial, as these gifts are not included in the estate when calculating IHT. This includes gifts that fall under the annual exemption, gifts to spouses or civil partners, and potentially exempt transfers, which are gifts that become exempt if the donor survives for seven years.

Following the exempt gifts, small gifts should be addressed. Although they are individually minor in value, collectively they can contribute to reducing the overall tax liability if executed wisely.

Next in the order are the reliefs available for transfers to a spouse or civil partner and charitable gifts. Spousal exemptions allow for an unlimited transfer of assets between spouses without incurring IHT, beneficial for overall tax planning. Charitable donations also enjoy reliefs, and these should be considered after personal exemptions and small gifts to ensure maximization of tax efficiency.

The reference to taper relief is not included in the correct sequence because it only applies to certain situations where there has been a gift made