Advanced Taxation (UK) · Inheritance tax: the basic principles of computing transfers of value

Taper Relief and Additional Tax on Death: IHT Valuation Explained

Updated 11 October 2026 · Fact-checked

When a donor dies within seven years of a lifetime gift, the gift is rechargeable at death rates of 40%. A PET becomes chargeable. A CLT is retaxed with additional tax. Taper relief cuts the tax, not the gift, if death falls more than three years after the gift. Value the gift using lifetime rules.

Understand Taper Relief, Additional Tax on Death and Valuation

Lifetime gifts to individuals are usually potentially exempt transfers (PETs). Gifts into most trusts are chargeable lifetime transfers (CLTs). Both can be pulled back into charge if the donor dies within seven years of making them.

A PET is exempt when made. If the donor dies within seven years, it becomes a chargeable transfer, taxed at the 40% death rate, with the nil rate band used against it. A CLT is taxed at 20% when made (on the excess over the nil rate band). If the donor dies within seven years, it is retaxed at 40%. The additional tax is the death tax less the lifetime tax already paid. It is never negative: no refund is due if lifetime tax was higher.

Taper relief reduces the tax, not the value of the transfer. It applies only where death is more than three years after the gift. It only helps where the gift exceeds the available nil rate band. A gift covered by the nil rate band has no tax to reduce, but it still uses up the band for later gifts and the estate.

Order matters. Gifts are dealt with in date order. Each gift uses the nil rate band left after earlier chargeable transfers in the seven years before it. Then the gifts made in the seven years before death use up the nil rate band before the death estate does. So a PET that fails can leave less nil rate band for the estate, even if taper relief reduces its own tax.

Valuation is by loss to the donor: value of the estate before the gift less value after. Related property is property owned by the donor's spouse or civil partner. It also includes property that the donor or their spouse or civil partner transferred to a charity or other exempt body as an exempt transfer, if the exempt body still holds it or held it within the previous five years. Each related item is valued as a proportion of the combined value. This matters for shareholdings: two 30% holdings held by spouses may each be valued as part of a 60% holding.

Quick succession relief (QSR) is a reduction in the tax charged. It applies to the death estate. Where relevant, it also applies to a lifetime chargeable transfer that is retaxed on death within seven years. It is available where the estate was increased by a chargeable transfer received in the previous five years. The relief is based on the tax paid on that earlier transfer. The percentages are not given in the tax tables, so you must learn them: 100%, 80%, 60%, 40% and 20% where the gap is up to 1, 2, 3, 4 and 5 years. The relief falls the longer the gap.

Key rules to remember

Seven-year rule: Death within 7 years of gift → PET becomes chargeable; CLT is retaxed at death rate; Death rate is 40%. Lifetime rate on a CLT is 20% of the excess over the nil rate band.
Taper relief table: Over 3 but under 4 years: 20% | over 4 but under 5: 40% | over 5 but under 6: 60% | over 6 but under 7: 80%; Relief reduces the tax. No relief if death within 3 years. Give the percentage reduction, not the percentage payable.
Additional tax on a CLT: Additional tax = (death tax after taper relief) − (lifetime tax paid), minimum nil; Taper relief is applied to the death tax, then lifetime tax paid is deducted. Do not taper the lifetime tax.
Tax on a failed PET: Tax = 40% × (gift value after exemptions − available nil rate band), then less taper relief; Annual exemptions come off first. The nil rate band available is £325,000 less chargeable transfers in the seven years before that gift.
Nil rate band: £325,000 (residence nil rate band £175,000 is for the death estate only); Do not use the residence nil rate band against lifetime transfers.
Valuation of a lifetime gift: Transfer of value = value of estate before − value of estate after; Add grossed-up tax if the donor pays tax on a CLT. Gross up at 20/80 when the donor pays.
Related property: Value of item = (item ÷ total related property value) × value of the combined holding; Used when the donor's own and related holdings together have a higher value. Apply it before and after the gift.

How to solve Taper Relief, Additional Tax on Death and Valuation questions

Use this method for any question on lifetime gifts followed by death. Work in date order and keep each gift's workings separate.

1List every gift in date order. Mark each as a PET or CLT and note the date of death and the number of complete years between each gift and death.
2Value each gift using loss to the donor, applying related property rules if relevant. Deduct available exemptions: annual exemption (this year and any one year brought forward), marriage gifts, and others given in the question. Start with the earliest gift.
3Work out the nil rate band available for each gift: £325,000 less chargeable transfers in the seven years before that gift. Include earlier CLTs, and PETs that have become chargeable.
4For gifts made within seven years of death, compute tax at 40% on the part above the available nil rate band. Gifts that fall wholly within the band have nil tax.
5Apply taper relief if more than three years passed. Reduce the tax by the percentage from the table.
6For CLTs, deduct lifetime tax already paid from the tapered death tax. If the result is negative, the additional tax is nil.
7Compute the nil rate band left for the death estate. Include all gifts in the seven years before death, using their values before taper relief. Then state who pays: the donee for PETs, the trustees for CLTs, the personal representatives for the estate.
8Show a final summary of tax per gift. Add a short comment if the question needs advice.

Quickest way: Table method for lifetime gifts and death

When to use it: Use it when there are two or more gifts and the question asks for the total tax payable because of death.

Draw columns: date, type, net value, nil rate band used, taxable amount, tax at 40%, taper %, tax payable.
Fill in nil rate band used for each gift in order, so each gift's band is visibly reduced by earlier gifts.
Tax only the excess. Taper at the end. For CLTs, subtract lifetime tax paid in one extra line.
Carry the total of gifts within seven years of death (before taper) into the estate computation to find its remaining nil rate band.

Common mistakes in Taper Relief, Additional Tax on Death and Valuation

Applying taper relief to the value of the gift rather than to the tax.
The word relief suggests the value is reduced.
Fix: Compute the tax on the full excess over the nil rate band first. Then reduce that tax by the taper percentage.
Applying taper relief to a gift that is wholly within the nil rate band.
Students apply the table automatically.
Fix: If tax is nil, there is nothing to reduce. The gift still uses nil rate band for later gifts and the estate.
Using the lifetime rate of 20% instead of the death rate of 40% when death occurs within seven years.
The CLT was taxed at 20% when made.
Fix: Retax the CLT at 40%, taper it, and then deduct lifetime tax paid.
Reducing the nil rate band for the estate by the tapered value of gifts.
Students link taper relief to the transfer value.
Fix: Use the full chargeable values of gifts in the seven years before death to reduce the nil rate band for the estate. Taper only reduces tax.
Counting years wrongly, such as treating exactly three years as eligible.
The table has gaps in wording.
Fix: Taper relief starts only when death is more than three years after the gift. Count the exact dates before choosing a percentage.
Forgetting related property or gross-up when valuing a gift.
Students value only the shares or property given away.
Fix: Compare the donor's estate before and after the gift, including related property. If the donor pays the tax on a CLT, gross up the net gift at 20/80.

Worked examples

Example 1

Mia made a gift of £500,000 cash to her nephew on 1 August 2019. She had made no earlier gifts, and annual exemptions are to be ignored. She died on 15 September 2024. Calculate the inheritance tax payable on the gift because of her death.

Show the solution

The gift is a PET. Mia died within seven years, so it is chargeable.
Death was more than 5 but less than 6 years after the gift. Taper relief is 60%.
Nil rate band available is £325,000.
Taxable amount = £500,000 − £325,000 = £175,000.
Tax at 40% = £70,000.
Taper relief 60% = £42,000, so tax payable = £70,000 − £42,000 = £28,000.

Answer: IHT payable on the PET is £28,000. It is paid by the nephew. The gift uses the whole £325,000 nil rate band, so none is left for Mia's death estate.

Example 2

Raj transferred £600,000 of cash into a discretionary trust on 1 March 2018. He paid any lifetime tax himself. He made no earlier transfers and annual exemptions are to be ignored. Raj died on 10 June 2023. Calculate the additional tax payable on the transfer on his death.

Show the solution

The transfer is a CLT. Raj paid the lifetime tax, so the £600,000 is a net gift and must be grossed up.
Lifetime tax = (£600,000 − £325,000) × 20/80 = £275,000 × 20/80 = £68,750.
Gross transfer = £600,000 + £68,750 = £668,750.
Death was more than 5 but less than 6 years after the gift (1 March 2018 to 10 June 2023 is 5 years 3 months), so taper relief is 60%.
Death tax = (£668,750 − £325,000) × 40% = £343,750 × 40% = £137,500.
After the 60% taper reduction, tax is £137,500 less 60% taper relief (£82,500) = £55,000.
Additional tax = £55,000 − £68,750 = negative, so nil.

Answer: Additional tax payable is nil. Lifetime tax paid of £68,750 exceeds the tapered death tax of £55,000. No refund is due. The CLT uses the whole £325,000 nil rate band, so none is left for Raj's estate.

Exam tips

Write the dates and the number of years between each gift and death before you do any tax. Taper errors cost easy marks.
Say clearly who pays: donee for a PET, trustees for a CLT, personal representatives for the estate. Questions often ask.
State that additional tax on a CLT cannot be negative. Add one line to show you know there is no refund.
In Section A scenarios, tie the answer to the client: for example, advise that surviving three more years starts taper relief, but only helps if the gift exceeds the nil rate band.
Use the nil rate band and taper table from the tax tables given in the exam. Do not rely on memory.

Practice questions from Inheritance tax: the basic principles of computing transfers of value

Taper Relief, Additional Tax on Death and Valuation: frequently asked questions

What is the taper relief table for inheritance tax?

Taper relief reduces tax by 20% if death is more than 3 but less than 4 years after the gift. It is 40% for 4 to 5 years, 60% for 5 to 6 years and 80% for 6 to 7 years. There is no relief for death within three years.

What is the difference between a PET becoming chargeable and additional tax on a CLT?

A PET had no tax when made, so all the death tax is due. A CLT already bore lifetime tax at 20%. On death within seven years it is retaxed at 40%, taper relief is applied, and the lifetime tax paid is deducted. The result is the additional tax.

Does taper relief reduce the value of the gift?

No. It reduces only the tax on the gift. The full value of the gift is still used to work out how much nil rate band is left for later gifts and the death estate.

What is related property in inheritance tax valuation?

Related property is property owned by the donor's spouse or civil partner. It also includes property that the donor or their spouse transferred to a charity or other exempt body as an exempt transfer, if that body still holds it or held it within the previous five years. Each item is valued as its share of the combined value. This can give a higher value than valuing the item alone, especially for shareholdings.