Taxation (UK) · The liabilities arising on chargeable lifetime transfers and on the death of an individual

Chargeable Lifetime Transfers and Lifetime IHT Calculation

Updated 11 October 2026 · Fact-checked

A chargeable lifetime transfer (CLT) is a lifetime gift to a trust or company. Deduct exemptions, then use any nil rate band left after the previous seven years of CLTs. Tax the excess at 20%. If the donor pays, gross up the excess. If the donee pays, do not. Death within seven years adds tax at 40%.

Understand Chargeable Lifetime Transfers and Lifetime IHT Calculation

Inheritance tax (IHT) taxes a fall in the value of a person's estate caused by a gift. Gifts to individuals are usually potentially exempt transfers (PETs) with no tax at the time. Gifts to trusts and companies are different. They are chargeable lifetime transfers (CLTs) and are taxed when made.

The tax works through the nil rate band (NRB). This is £325,000 and is a band of value taxed at 0%. Anything above it is taxed at the lifetime rate of 20%. The NRB is shared across all CLTs made in a seven-year window. When you test a new CLT, look back seven years from its date. Add up the chargeable transfers in that window. Only the NRB left over is available. Gifts made more than seven years earlier drop out and the band is restored.

Who pays matters. If the donor pays the tax, the donor loses both the gift and the tax. The loss to the donor is therefore the net gift plus the tax. So you gross up the part of the net gift above the available NRB. Multiply it by 100 ÷ 80. If the donee pays, the donor loses only the gift. No grossing up is needed. Tax is 20% of the excess over the available NRB.

The lifetime tax is not always the end. If the donor dies within seven years of the CLT, the transfer is taxed again at the death rate of 40%. This uses the NRB available at that date, which is the NRB less chargeable transfers in the seven years before the CLT. Taper relief cuts the tax if death is more than three years after the gift. Lifetime tax already paid is then credited. You never get a refund if the lifetime tax was higher.

Key rules to remember

Nil rate band and rates: NRB £325,000; lifetime rate 20%; death rate 40%; Given in the ACCA tax rates and allowances. The lifetime rate applies only to the excess over the available NRB.
Chargeable amount before tax: Gift (loss to donor) − annual exemptions (£3,000 for the year, plus any unused amount from the previous year) = net chargeable gift; Deduct exemptions first, current year before the previous year. They are deducted from the net gift, before any grossing up.
Available NRB: £325,000 − chargeable transfers in the seven years before the gift; Include earlier CLTs at their gross values. Include PETs in the window only if they have become chargeable because the donor died within seven years.
Tax when donee pays: 20% × (net chargeable gift − available NRB); No grossing up. If the gift is within the NRB, tax is nil.
Gross up when donor pays: Gross chargeable transfer = available NRB + (net gift − available NRB) × 100 ÷ 80; tax = 20% × (net gift − available NRB) × 100 ÷ 80; Check: net gift + tax = gross chargeable transfer.
Additional tax on death within seven years: [40% × (gross CLT − NRB available at the gift)] × (1 − taper %) − lifetime tax paid, minimum nil; Taper relief reduces the tax. It does not reduce the value.
Taper relief: 3–4 years 20%; 4–5 years 40%; 5–6 years 60%; 6–7 years 80%; Reduction in tax. Death within three years gets no relief. The bands are 'more than' the lower figure and 'less than' the upper figure.

How to solve Chargeable Lifetime Transfers and Lifetime IHT Calculation questions

Use the same sequence for any lifetime IHT question on a gift to a trust or company. Set the working out in columns so the marker can follow each step.

1Decide the type of transfer. Gifts to trusts and companies are CLTs. Gifts to individuals are PETs and have no lifetime tax.
2Find the loss to the donor. Use the fall in value of the donor's estate, not the value received. Then deduct reliefs and exemptions, such as the annual exemption (current year first, then the previous year if unused).
3Look back seven years from the date of the gift. Total the chargeable transfers in that window and work out the NRB still available.
4Check who pays. If the donee pays, tax = 20% × (net gift − available NRB). If the donor pays, gross up the excess by 100 ÷ 80 and add back the NRB used.
5Record the gross chargeable transfer. This figure goes into the cumulative total for later gifts and for the death calculation.
6If the donor dies within seven years, recompute at 40% on the gross CLT less the NRB available at that date. Ignore the 20% already paid for this step.
7Apply taper relief to the tax, using the gap between gift and death. Then deduct the lifetime tax paid. If the answer is negative, the additional tax is nil.
8State the answer clearly with a label, for example 'lifetime IHT payable by donor' or 'additional IHT on death'.

Quickest way: Three-line shortcut for the tax

When to use it: Use this for objective test questions and for the lifetime tax part of a Section C answer, once exemptions are deducted.

Write NRB available = £325,000 minus the gross CLTs of the last seven years.
Excess = net gift − NRB available. If it is zero or negative, tax is nil.
Donee pays: tax = excess × 20%. Donor pays: tax = excess × 25% (since 20% ÷ 80% = 25%). Gross CLT = net gift + tax.
On death: recompute 40% × (gross CLT − NRB available), multiply by (1 − taper), and subtract lifetime tax.

Common mistakes in Chargeable Lifetime Transfers and Lifetime IHT Calculation

Grossing up the whole gift instead of only the excess over the NRB.
Students remember '× 100 ÷ 80' and apply it to everything.
Fix: Subtract the available NRB first. Gross up only the excess, then add the NRB back to get the gross transfer.
Forgetting the annual exemptions, or taking them after grossing up.
The gift looks like a single figure and exemptions are read as a minor detail.
Fix: Deduct the £3,000 exemption for the year (and the previous year if unused) from the gift first. Do this before the NRB and before any grossing up.
Using the wrong seven-year window, for example looking forward from the gift.
Students confuse the cumulation period with the seven years that matter for death.
Fix: For the NRB, look back seven years from the date of this gift. For additional tax on death, look forward seven years from the gift to the date of death.
Applying taper relief to the value of the gift or to the NRB.
The word 'relief' suggests a reduction in the amount transferred.
Fix: Taper relief reduces only the 40% death tax. Work out the full death tax first, then multiply by (1 − taper %).
Refunding lifetime tax when the death tax is lower.
Students treat the credit for lifetime tax as a negative figure that can be repaid.
Fix: Additional tax on death cannot go below nil. Lifetime tax is never refunded.
Ignoring earlier PETs when working out the NRB available to a CLT.
PETs are thought to be exempt, so they are dropped from the cumulative total.
Fix: If the donor has died within seven years of an earlier PET, it becomes chargeable. It then uses up NRB in the seven years before a later CLT.

Worked examples

Example 1

Alan has made no earlier gifts. On 10 October 2025 he gives £400,000 cash to a discretionary trust and pays any lifetime IHT himself. His annual exemptions for 2025/26 and 2024/25 are unused. Alan dies on 15 March 2030. Calculate the lifetime IHT and the additional IHT on death.

Show the solution

The gift to a trust is a CLT.
Annual exemptions: £3,000 + £3,000 = £6,000. Net gift = £400,000 − £6,000 = £394,000.
NRB available: no transfers in the previous seven years, so £325,000.
Excess over NRB = £394,000 − £325,000 = £69,000.
Donor pays, so gross up: £69,000 × 100 ÷ 80 = £86,250. Lifetime IHT = 20% × £86,250 = £17,250.
Gross chargeable transfer = £325,000 + £86,250 = £411,250. Check: £394,000 + £17,250 = £411,250.
Death: 10 October 2025 to 15 March 2030 is more than four but less than five years. Taper relief is 40%.
NRB available at death: £325,000. Death tax before taper = 40% × (£411,250 − £325,000) = 40% × £86,250 = £34,500.
After taper: £34,500 × 60% = £20,700. Less lifetime tax paid £17,250 = £3,450.

Answer: Lifetime IHT payable by Alan: £17,250. Additional IHT on death: £3,450.

Example 2

Beth made a CLT with a gross chargeable value of £100,000 five years ago. Today she gives £250,000 to a company. Her annual exemptions are already used. Calculate the lifetime IHT (a) if the company pays the tax and (b) if Beth pays the tax.

Show the solution

A gift to a company is a CLT. No exemptions are available, so the net gift is £250,000.
The earlier CLT was five years ago, which is within seven years, so it counts.
NRB available = £325,000 − £100,000 = £225,000.
Excess = £250,000 − £225,000 = £25,000.
(a) Donee pays: tax = 20% × £25,000 = £5,000. The gross chargeable transfer is £250,000.
(b) Donor pays: gross up £25,000 × 100 ÷ 80 = £31,250. Tax = 20% × £31,250 = £6,250.
Gross chargeable transfer in (b) = £225,000 + £31,250 = £256,250. Check: £250,000 + £6,250 = £256,250.

Answer: (a) Lifetime IHT £5,000, paid by the company. (b) Lifetime IHT £6,250, paid by Beth. The gross chargeable transfer is £256,250.

Exam tips

Read who pays the tax before you start. If the question is silent, the standard exam position is that the donor pays, which means you gross up.
Show the seven-year lookback as a separate working. Marks are given for the NRB available and for the date window.
In objective tests, check whether the question asks for the gross transfer or the tax. Both come from the same working, so the wrong one is an easy lost mark.
In death questions, set out four lines: tax at 40%, taper reduction, lifetime tax credit, additional tax. Partial marks often depend on the layout.
Use the dates carefully. A gift 'more than four but less than five years' before death gives 40% taper. Exactly four years does not qualify for that rate.

Practice questions from The liabilities arising on chargeable lifetime transfers and on the death of an individual

Chargeable Lifetime Transfers and Lifetime IHT Calculation in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalChargeable Lifetime Transfers and PETs

Chargeable Lifetime Transfers and Lifetime IHT Calculation: frequently asked questions

Is a gift to a trust always a chargeable lifetime transfer?

Generally yes. Gifts into trusts are CLTs and are taxed when made. Gifts to individuals are normally PETs and are not taxed unless the donor dies within seven years.

How do you gross up a chargeable lifetime transfer?

Take the net gift above the available nil rate band and multiply it by 100 ÷ 80. Add back the nil rate band to get the gross chargeable transfer. Tax is 20% of the grossed-up excess.

What is the difference between the donor paying and the donee paying?

If the donee pays, tax is 20% of the net gift above the available NRB. If the donor pays, the tax itself reduces the donor's estate, so the excess is grossed up. The donor's tax bill is therefore higher, at an effective 25% of the net excess.

Does the seven-year cumulation period restore the nil rate band?

Yes. Only chargeable transfers made in the seven years before the new gift reduce the NRB. Once a gift is more than seven years old it no longer uses up the band.

Can lifetime tax be refunded if the donor dies within seven years?

No. The lifetime tax is credited against the death tax on the same transfer. If the credit is more than the death tax, the additional tax is nil, but nothing is repaid.