Pillar Guide · Updated July 2026
Chargeable Lifetime Transfers & Trusts: 2026/27 Guide
Gifts into most trusts are treated differently from gifts to individuals for Inheritance Tax purposes. This guide explains how Chargeable Lifetime Transfers are taxed immediately, what happens if you die within seven years, and the periodic and exit charges that apply afterwards.
What a CLT Is
Most lifetime gifts to another individual are potentially exempt transfers (PETs), which fall entirely outside your estate if you survive seven years and are not taxed at the time you make them. A gift into most types of trust, however — typically a discretionary trust — is instead a Chargeable Lifetime Transfer (CLT). CLTs are added together over a rolling seven-year period to determine how much of your nil rate band remains available, and can trigger an immediate tax charge.
The Immediate Lifetime Charge
When you make a CLT, its value (after deducting any available exemptions and reliefs) is added to any other CLTs made in the previous seven years. If the running total exceeds your available nil rate band (£325,000, frozen until April 2030), tax is due immediately on the excess at the lifetime rate of 20% if you (the settlor) pay the tax personally, or an effective 25% if the trustees pay it from the gifted funds, since paying the tax from the gift itself increases its effective taxable value.
Death Within 7 Years
If you die within seven years of making a CLT, HMRC recalculates the tax using the death rate of 40% instead of the 20% lifetime rate, giving credit for any lifetime tax already paid. If death occurs more than three years after the transfer, taper relief reduces the additional tax due on a sliding scale up to the full seven years, though taper relief only reduces the tax charge itself, not the value of the transfer for cumulation purposes.
10-Year Periodic Charges
Trusts within the relevant property regime — mainly discretionary trusts — face a periodic (10-year anniversary) charge on each 10th anniversary of the trust's creation. The charge applies to the value of trust assets above the nil rate band available to the trust at that point, at a rate up to a maximum effective 6%, calculated using a formula that takes into account the trust's history of CLTs and distributions.
Exit Charges
If capital leaves the trust between 10-year anniversaries — for example, trustees distribute funds to a beneficiary — an exit charge (also called a proportionate charge) can apply. It is calculated with reference to the rate charged at the last periodic charge (or the initial CLT rate if within the first 10 years) and the proportion of the 10-year period that has elapsed since, again capped at an effective 6%.
Trusts Outside This Regime
Not every trust is subject to CLT and relevant property rules. Notable exceptions include:
- Bare (absolute) trusts, where the beneficiary is treated as owning the assets outright from the start
- Trusts for bereaved minors, set up under a will or intestacy for children of a deceased parent
- Trusts for disabled beneficiaries meeting the qualifying conditions
- Certain interest in possession trusts created before 22 March 2006, which follow older rules