Taxation (UK) · Payment of inheritance tax

Who Is Liable to Pay Inheritance Tax in TX-UK

Updated 11 October 2026 · Fact-checked

Liability depends on the type of transfer. The donor pays tax on a chargeable lifetime transfer. The donee, or the trustees, pays extra tax if the donor dies within seven years and tax on a failed PET. The personal representatives pay tax on the death estate out of estate assets.

Understand Who Is Liable to Pay Inheritance Tax

Inheritance tax (IHT) is charged on transfers of value. The exam question is not only how much tax there is. It is also who must pay it. The answer changes with the type of transfer.

There are three situations. First, a chargeable lifetime transfer (CLT), such as a gift to a trust. Second, a potentially exempt transfer (PET) that becomes chargeable because the donor dies within seven years. Third, the death estate.

For a CLT, the transferor (the donor) is primarily liable for the lifetime tax. The transferee (the trustees) is secondarily liable. If the donor pays, the tax is paid on top of the gift, so you gross up the net gift. If the trustees pay, there is no grossing up.

A PET has no tax when it is made. If the donor dies within seven years it becomes chargeable, and the donee is primarily liable. The same goes for extra tax on a CLT after death within seven years. There the trustees, as transferee, pay the additional tax. The donor's personal representatives are not the first people to pay these lifetime taxes. In the exam, say the donee or trustees pay.

On death, the personal representatives (PRs) pay the tax on the death estate. They pay it from estate assets. They are responsible for reporting and paying it. The tax is due six months after the end of the month of death, and interest runs after that.

Key rules to remember

Lifetime tax on a CLT: (Chargeable value − available nil rate band) × 20%; Use this when the donee or trustees pay the tax. The nil rate band is £325,000 less CLTs in the previous seven years. The lifetime rate is 20%.
Gross up when the donor pays: Tax = excess over nil rate band × 20 ÷ 80; The donor paying the tax is itself a transfer of value. So the net excess is grossed up. The effective rate is 25% of the net excess.
Death rate on lifetime transfers: Tax at 40% on the amount above the nil rate band, less taper relief; Taper relief applies only to the tax, not to the value. It applies to gifts made more than three years before death.
Taper relief: 3–4 years 20%; 4–5 years 40%; 5–6 years 60%; 6–7 years 80% reduction; These are the percentage reductions in the tax, as in the ACCA tax tables.
Who pays: CLT: donor (trustees secondary). PET or extra tax on a CLT on death: donee or trustees. Death estate: personal representatives; This is the core rule for the topic.

How to solve Who Is Liable to Pay Inheritance Tax questions

Use this method for any question asking who pays IHT or how much each person pays.

1Identify the type of transfer: CLT, PET, or the death estate.
2Check whether the donor has died within seven years of the gift. If not, a PET is exempt and no tax arises.
3For a CLT, calculate the lifetime tax. Work out the nil rate band left after earlier CLTs in the previous seven years. Gross up if the donor pays.
4If death occurs within seven years, recalculate the gift at death rates, using the nil rate band at death. Apply taper relief where the gift was more than three years before death. Subtract any lifetime tax paid.
5Name the person liable. The donor pays lifetime tax on a CLT. The donee or trustees pays extra tax and tax on a failed PET. The PRs pay the death estate tax.
6Remember the order of use of the nil rate band. Lifetime gifts are taken first in date order, so the estate gets only what is left.
7State the due date if the question asks, and mention that the donee can pay even if the donor's estate is involved.

Quickest way: Who-pays shortcut

When to use it: Use this for objective test questions that ask who is liable, or what tax the donee pays.

Ask: was the transfer made in life or on death?
If it was made in life to a trust, the donor pays at 20%, and the trustees are secondarily liable.
If it was a PET and the donor has died, the donee pays at 40% less taper relief.
If it is the death estate, the PRs pay at 40% after the nil rate band.
Check the donor's death date against seven years before writing any figure.

Common mistakes in Who Is Liable to Pay Inheritance Tax

Saying the personal representatives pay tax on a failed PET.
Students link death with the PRs.
Fix: The PRs deal with the death estate. The donee pays tax on a failed PET. The extra tax on a CLT is paid by the trustees.
Forgetting to gross up when the donor pays the lifetime tax.
Students use the 20% rate on the excess without checking who pays.
Fix: If the donor pays, multiply the excess by 20 ÷ 80. If the donee pays, use 20% of the excess.
Charging tax on a PET during the donor's life.
Students treat every gift the same way.
Fix: A PET has no tax when it is made. It becomes chargeable only if the donor dies within seven years.
Applying taper relief to the value of the gift.
Students think the taper reduces the transfer.
Fix: Taper relief reduces the tax only. The full gift value still uses up the nil rate band.
Forgetting that lifetime tax already paid is deducted.
Students calculate the death tax and stop.
Fix: Deduct the lifetime tax paid on a CLT from the death tax. The additional tax cannot be less than zero.
Giving the estate the full nil rate band when lifetime gifts exist.
Students treat each transfer separately.
Fix: Failed lifetime gifts use the nil rate band first. The estate gets only what is left.

Worked examples

Example 1

Ravi made a gift of £400,000 cash to his daughter on 10 June 2022. It was his first gift. After annual exemptions of £6,000 the PET is £394,000. Ravi dies on 15 March 2026. His death estate is £200,000 of investments left to his nephew, with no residence passing to descendants. Who pays the tax and how much?

Show the solution

The gift is a PET. Ravi dies within seven years, so it becomes chargeable.
Nil rate band of £325,000 is used against the PET. Excess = £394,000 − £325,000 = £69,000.
Tax at the death rate of 40% = £69,000 × 40% = £27,600.
The gift was made 3 years 9 months before death, so taper relief is 20%. Tax = £27,600 × 80% = £22,080.
The donee, his daughter, pays £22,080.
The nil rate band has been fully used by the PET. The estate of £200,000 is taxed at 40% = £80,000. The PRs pay this from the estate.

Answer: The daughter pays £22,080 on the failed PET. The personal representatives pay £80,000 on the death estate.

Example 2

Mina transfers £500,000 to a trust on 1 December 2021. It is her first transfer. After annual exemptions of £6,000 the chargeable value is £494,000. Mina pays the lifetime tax herself. She dies in June 2025. Find the lifetime tax, who pays it, and the extra tax on death with who pays it.

Show the solution

The transfer to a trust is a CLT. The donor Mina is primarily liable for the lifetime tax.
Net excess over the nil rate band = £494,000 − £325,000 = £169,000.
Because Mina pays, gross up: £169,000 × 20 ÷ 80 = £42,250 lifetime tax.
Gross chargeable transfer = £494,000 + £42,250 = £536,250.
On death within seven years, use the death rate. Excess = £536,250 − £325,000 = £211,250. Tax at 40% = £84,500.
Death occurs 3 years 6 months after the gift, so taper relief is 20%. Tax = £84,500 × 80% = £67,600.
Deduct the lifetime tax paid: £67,600 − £42,250 = £25,350.
The trustees, as transferee, are primarily liable for the additional tax.

Answer: Mina pays £42,250 lifetime tax. The trustees pay additional tax of £25,350 after her death.

Exam tips

Always start by naming the transfer as a CLT, PET or the death estate. The marks for who pays follow from this.
In a written answer, give the person liable in a separate short sentence. Do not bury it in the calculation.
Check who pays lifetime tax on a CLT. The grossing up step is easy to forget and is often examined.
Use only the rates and bands in the ACCA tax tables, such as the £325,000 nil rate band and the taper relief percentages.
In objective test questions, one wrong option is often the personal representatives. Read for lifetime or death before you choose.

Practice questions from Payment of inheritance tax

Who Is Liable to Pay Inheritance Tax: frequently asked questions

Who pays inheritance tax on lifetime transfers in ACCA TX-UK?

On a chargeable lifetime transfer the donor pays the lifetime tax. The trustees, as transferee, are secondarily liable. A PET has no tax when it is made.

Who pays IHT on a PET that becomes chargeable?

The donee pays the tax if the donor dies within seven years. The tax is at 40% on the excess over the available nil rate band, reduced by taper relief where it applies.

What is the liability of the personal representatives?

The personal representatives are responsible for reporting and paying tax on the death estate, using estate assets. They do not normally pay the tax on lifetime gifts. The donee or trustees do.

What is the difference between the liability of donor and donee?

The donor is liable for lifetime tax on a CLT. The donee or trustees is liable for the extra tax on a CLT after death and for tax on a failed PET.