What is taper relief on Inheritance Tax gifts?

Taper relief reduces the Inheritance Tax payable on a failed Potentially Exempt Transfer (PET) - a lifetime gift to an individual where the giver dies within 7 years. Tax on the gift is charged at the full rate if death is within 3 years, then at 80% of it after 3 to 4 years (20% relief), 60% after 4 to 5 years, 40% after 5 to 6 years and 20% after 6 to 7 years. After 7 years the gift is exempt. Taper relief is in section 7(4) of the Inheritance Tax Act 1984 and explained in HMRC manual IHTM14612.

Does taper relief reduce the gift value or just the tax?

Only the tax, and only where tax is due on the gift. A gift is first set against the nil-rate band available to it (the £325,000 band less chargeable gifts made in the 7 years before it). If the gift fits within that, there is no tax to taper, but the gift still uses up nil-rate band that the rest of the estate would otherwise have had (HMRC IHTM14611; GOV.UK Inheritance Tax: gifts).

How does the Nil-Rate Band interact with the 7-year rule?

Gifts made in the 7 years before death are taken into account in date order, earliest first, at their value when given. The nil-rate band is set against them first, and only the excess is taxed at 40% before taper relief. Any nil-rate band used by those gifts is not available to the estate left at death, which is why a gift made 6 and a half years before death can still increase the tax on the estate.

What is the annual exemption and how does it apply?

Each person can give away £3,000 in each tax year free of Inheritance Tax (IHTA 1984 s.19). Gifts covered by it are exempt straight away and never enter the 7-year count. Unused exemption can be carried forward one tax year only, so a donor who used none in the previous year can give £6,000 in the current year. On a larger gift, the first £3,000 is covered and the rest is a PET.

What counts as a Potentially Exempt Transfer (PET)?

A PET is a gift by an individual to another individual, or into a bare trust or a disabled person's trust, that is not otherwise exempt. Cash gifts to children, help with a house deposit or paying off a relative's mortgage are typical PETs. Gifts into most other trusts, such as discretionary trusts, are chargeable lifetime transfers: tax at 20% can be due when they are made if they exceed the available nil-rate band, and further tax at death if the giver dies within 7 years, with taper relief only reducing that death-time charge (HMRC IHTM14611). Gifts to a spouse or civil partner and to charities are normally exempt and never enter the 7-year count.

Who pays the IHT on a failed PET - the recipient or the estate?

The person who received the gift is liable for the tax on it (IHTA 1984 s.199(1)(b)). The personal representatives become liable only if, broadly, the tax is still unpaid 12 months after the end of the month of death (IHTA 1984 s.204(8)), in which case the estate, and so its other beneficiaries, can end up bearing it. Some people take out term life insurance written in trust for the 7-year period so that the payout, which falls outside the estate, is available to meet any tax.

Are gifts with reservation of benefit covered by the 7-year rule?

No. If you give something away but keep a benefit from it - for example, giving your home to your children but carrying on living in it without paying rent at the going rate - it is a gift with reservation and still counts as part of your estate (Finance Act 1986 s.102; GOV.UK Inheritance Tax: gifts). To avoid this you must stop benefiting or pay a full market rent and your share of the bills. The pre-owned assets Income Tax charge (Finance Act 2004 Sch 15) can apply to some arrangements that fall outside the reservation rules.

What records should I keep for lifetime gifts?

Executors have to report gifts made in the 7 years before death on the IHT400 (schedule IHT403 covers gifts). Keep a record of each gift: date, recipient, what was given and its value at the time, and any exemption relied on (annual £3,000, small gifts up to £250, wedding gifts, normal expenditure out of income). The normal expenditure exemption in particular needs evidence that the gifts were regular, came from income rather than capital and left you able to maintain your usual standard of living (IHTA 1984 s.21).

£50,000 Lifetime Gift: UK IHT Taper Relief 2026/27

A £50,000 lifetime gift to an individual is a Potentially Exempt Transfer (PET). If the donor survives 7 complete years, the gift is fully outside the estate. Die earlier and the tax depends on how much Nil-Rate Band is available, plus how many years of taper relief have accrued. With the full £325,000 NRB available and 5 years of survival, the IHT bill is £0. With NRB fully consumed by earlier gifts and the donor dying within 3 years, it is £18,800. Verified against gov.uk taper table and HMRC IHTM14612.

NRB available, 5 yrs survived

£0

Chargeable £0 - 60% taper applied

No NRB, died within 3 yrs

£18,800

Full 40% rate - no taper relief

After 7 complete years

£0

Fully exempt - gift drops out of estate

Scenario A: full £325,000 NRB available

No earlier lifetime gifts in the 7-year window, so the gift can use the full Nil-Rate Band. The £3,000 annual exemption is also applied. This is the standard case for a first significant gift.

Years since gift	Chargeable	Tax before taper	Taper relief	Tax payable
0 to 3 years	£0	£0	£0	£0
3 to 4 years	£0	£0	£0	£0
4 to 5 years	£0	£0	£0	£0
5 to 6 years	£0	£0	£0	£0
6 to 7 years	£0	£0	£0	£0
7+ years	£0	£0	£0	£0

Scenario B: zero NRB available

Earlier lifetime gifts in the 7-year window already consumed the full £325,000 Nil-Rate Band. The entire £50,000 gift (less the £3,000 annual exemption) is in the chargeable slice. This is where taper relief matters most.

Years since gift	Chargeable	Tax before taper	Taper relief	Tax payable
0 to 3 years	£47,000	£18,800	£0	£18,800
3 to 4 years	£47,000	£18,800	£3,760	£15,040
4 to 5 years	£47,000	£18,800	£7,520	£11,280
5 to 6 years	£47,000	£18,800	£11,280	£7,520
6 to 7 years	£47,000	£18,800	£15,040	£3,760
7+ years	£0	£0	£0	£0

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Related calculators

IHT gift taper calculator - interactive form, tune NRB and annual exemption.
Inheritance Tax calculator - the full estate calculation including RNRB and £2m taper.
Capital Gains Tax calculator - some lifetime gifts also trigger CGT.
Pension drawdown - from April 2027 most pensions enter the IHT estate.

Frequently asked questions

What is taper relief on Inheritance Tax gifts?: Taper relief reduces the Inheritance Tax payable on a failed Potentially Exempt Transfer (PET) - a lifetime gift to an individual where the giver dies within 7 years. Tax on the gift is charged at the full rate if death is within 3 years, then at 80% of it after 3 to 4 years (20% relief), 60% after 4 to 5 years, 40% after 5 to 6 years and 20% after 6 to 7 years. After 7 years the gift is exempt. Taper relief is in section 7(4) of the Inheritance Tax Act 1984 and explained in HMRC manual IHTM14612.
Does taper relief reduce the gift value or just the tax?: Only the tax, and only where tax is due on the gift. A gift is first set against the nil-rate band available to it (the £325,000 band less chargeable gifts made in the 7 years before it). If the gift fits within that, there is no tax to taper, but the gift still uses up nil-rate band that the rest of the estate would otherwise have had (HMRC IHTM14611; GOV.UK Inheritance Tax: gifts).
How does the Nil-Rate Band interact with the 7-year rule?: Gifts made in the 7 years before death are taken into account in date order, earliest first, at their value when given. The nil-rate band is set against them first, and only the excess is taxed at 40% before taper relief. Any nil-rate band used by those gifts is not available to the estate left at death, which is why a gift made 6 and a half years before death can still increase the tax on the estate.
What is the annual exemption and how does it apply?: Each person can give away £3,000 in each tax year free of Inheritance Tax (IHTA 1984 s.19). Gifts covered by it are exempt straight away and never enter the 7-year count. Unused exemption can be carried forward one tax year only, so a donor who used none in the previous year can give £6,000 in the current year. On a larger gift, the first £3,000 is covered and the rest is a PET.
What counts as a Potentially Exempt Transfer (PET)?: A PET is a gift by an individual to another individual, or into a bare trust or a disabled person's trust, that is not otherwise exempt. Cash gifts to children, help with a house deposit or paying off a relative's mortgage are typical PETs. Gifts into most other trusts, such as discretionary trusts, are chargeable lifetime transfers: tax at 20% can be due when they are made if they exceed the available nil-rate band, and further tax at death if the giver dies within 7 years, with taper relief only reducing that death-time charge (HMRC IHTM14611). Gifts to a spouse or civil partner and to charities are normally exempt and never enter the 7-year count.
Who pays the IHT on a failed PET - the recipient or the estate?: The person who received the gift is liable for the tax on it (IHTA 1984 s.199(1)(b)). The personal representatives become liable only if, broadly, the tax is still unpaid 12 months after the end of the month of death (IHTA 1984 s.204(8)), in which case the estate, and so its other beneficiaries, can end up bearing it. Some people take out term life insurance written in trust for the 7-year period so that the payout, which falls outside the estate, is available to meet any tax.
Are gifts with reservation of benefit covered by the 7-year rule?: No. If you give something away but keep a benefit from it - for example, giving your home to your children but carrying on living in it without paying rent at the going rate - it is a gift with reservation and still counts as part of your estate (Finance Act 1986 s.102; GOV.UK Inheritance Tax: gifts). To avoid this you must stop benefiting or pay a full market rent and your share of the bills. The pre-owned assets Income Tax charge (Finance Act 2004 Sch 15) can apply to some arrangements that fall outside the reservation rules.
What records should I keep for lifetime gifts?: Executors have to report gifts made in the 7 years before death on the IHT400 (schedule IHT403 covers gifts). Keep a record of each gift: date, recipient, what was given and its value at the time, and any exemption relied on (annual £3,000, small gifts up to £250, wedding gifts, normal expenditure out of income). The normal expenditure exemption in particular needs evidence that the gifts were regular, came from income rather than capital and left you able to maintain your usual standard of living (IHTA 1984 s.21).