Answers · UK 2025/26
What is IHT taper relief and how does it reduce tax on gifts?
IHT taper relief reduces the inheritance tax rate on gifts made between 3 and 7 years before death. The relief starts at 20% for gifts made 3--4 years before death and increases to 80% for gifts made 6--7 years before death. It applies only to the IHT on the excess above the Nil Rate Band, not to the gift value itself.
Full answer
Taper relief is a mechanism that reduces the inheritance tax (IHT) payable on gifts (Potentially Exempt Transfers -- PETs and some Chargeable Lifetime Transfers) when the donor dies between 3 and 7 years after making the gift. It does not apply if death occurs within 3 years. **Taper Relief Rates** | Years Between Gift and Death | Tax Reduction | Effective IHT Rate on Excess | |---|---|---| | Under 3 years | 0% | 40% | | 3--4 years | 20% | 32% | | 4--5 years | 40% | 24% | | 5--6 years | 60% | 16% | | 6--7 years | 80% | 8% | | 7+ years | 100% | 0% | **Critical point: taper relief only applies to the tax, not the gift value** The gift is still added to the estate for NRB purposes at its full value. Taper relief only affects the rate of IHT charged on the portion of the gift exceeding the Nil Rate Band. **Worked Example 1 -- gift within NRB** - NRB remaining: £325,000 - Gift made 5 years before death: £200,000 - The gift is absorbed within the NRB - **IHT payable: £0** (taper relief is irrelevant as no IHT arises) **Worked Example 2 -- large gift with some NRB used** - NRB: £325,000 - Other gifts already using NRB: £225,000 - New gift made 4.5 years before death: £300,000 - Remaining NRB for this gift: £325,000 - £225,000 = £100,000 - Amount above NRB: £300,000 - £100,000 = £200,000 - Standard IHT: £200,000 x 40% = £80,000 - Taper relief (4--5 year band = 40% reduction): £80,000 x 60% = **£48,000 payable** **Who pays the tax?** Primarily the recipient of the gift (the donee) is liable for IHT on a failed PET. If the donee cannot or does not pay, the estate may be required to cover it. **Interaction with annual exemptions** The £3,000 annual gifting exemption is deducted from a gift before taper relief is applied. So a £100,000 gift in a year where you have not used your annual exemption is treated as a £97,000 PET for IHT purposes. **Chargeable lifetime transfers (CLTs)** Gifts to most trusts are CLTs, charged to IHT at 20% on entry and then potentially further IHT on death if the donor dies within 7 years. Taper relief also applies to CLTs, but the calculation is more complex -- seek specialist advice.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.