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Advanced Taxation (UK) · Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

Additional Tax on Death and Taper Relief Explained

Updated 11 October 2026 · Fact-checked

When someone dies within seven years of a lifetime transfer, that transfer is re-taxed at the 40% death rate. A failed PET becomes chargeable. Taper relief reduces the tax, not the value, if death is more than three years later. For a CLT, you deduct the lifetime tax already paid.

Understand Additional Tax on Death and Taper Relief

Inheritance tax (IHT) on lifetime gifts is not always final. A potentially exempt transfer (PET) is a gift to an individual. It is exempt if the donor lives seven years. If the donor dies within seven years, it becomes a failed PET and is chargeable.

A chargeable lifetime transfer (CLT), such as a gift into a discretionary trust, is taxed at once. The lifetime rate is 20% on the excess over the nil rate band. If the donor dies within seven years, the CLT is re-taxed at the death rate of 40%. You then give credit for lifetime tax already paid.

The key point is that the value of the transfer stays fixed at the date of the gift. Only the tax is recalculated at death rates. The nil rate band of £325,000 is used up by earlier chargeable transfers in the seven years before each gift. So you work through the gifts in date order.

Taper relief reduces the tax on a transfer when death is more than three years after it. It applies only to the tax. It gives no benefit if the transfer falls within the nil rate band, because there is no tax to reduce. This is why the order and the nil rate band allocation matter so much.

Finally, death also uses the estate. Failed lifetime gifts use up the nil rate band first, so the estate may get less or none of it. This means a failed gift can raise the tax on the death estate as well.

Key rules to remember

Nil rate band and death rate
Nil rate band £325,000; death rate 40%; lifetime rate 20% on the excess
The residence nil rate band of £175,000 relates to the death estate and a home passed to direct descendants. It is not used against lifetime transfers.
Taper relief
Years before death: more than 3 but less than 4 = 20%; more than 4 but less than 5 = 40%; more than 5 but less than 6 = 60%; more than 6 but less than 7 = 80% reduction
The percentage reduces the tax. There is no reduction if death is within 3 years of the gift.
Additional tax on a failed PET
Tax at 40% on the part above the available nil rate band × (1 − taper %)
Available nil rate band = £325,000 less chargeable transfers in the 7 years before the gift.
Additional tax on a CLT
Death tax after taper relief − lifetime tax paid, with a minimum of nil
No refund is given if the lifetime tax paid is higher. The taper applies to the death tax, not to the lifetime tax paid.
Cumulation period
Look back 7 years from the date of each gift
Include CLTs and failed PETs in that period. PETs count only once they have failed.

How to solve Additional Tax on Death and Taper Relief questions

Use this method for any question on death within seven years of lifetime gifts.

  1. 1List all gifts in date order. Note each date, the type (PET or CLT) and the value after annual exemptions and any reliefs.
  2. 2Remove gifts made more than seven years before death. Those drop out and are not re-taxed.
  3. 3For each remaining gift, find the chargeable transfers in the seven years before it. Include CLTs and failed PETs. Subtract them from £325,000 to get the available nil rate band.
  4. 4Set the gift against the available nil rate band. Tax the excess at 40%.
  5. 5Measure the time from the gift to death. Apply the taper relief percentage to the tax from step 4.
  6. 6For a CLT, deduct the lifetime tax already paid. Do not go below nil.
  7. 7Record how much nil rate band each gift used. Deduct it from the £325,000 available to the death estate.
  8. 8Add the tax on the death estate separately, using any nil rate band left.

Quickest way: Date-order nil rate band table

When to use it: Use this when there are three or more gifts and time is short.

  1. Draw a column for each gift: date, value, 7-year look-back, nil rate band available.
  2. Work from the earliest gift forward. Each gift uses up band for the later ones.
  3. Write the taper percentage next to each gift straight away from the year gap.
  4. If a gift is wholly inside the available band, write nil tax and move on. Do not apply taper.
  5. For CLTs, write the lifetime tax paid next to the death tax so that you do not forget the credit.

Common mistakes in Additional Tax on Death and Taper Relief

  • Applying taper relief to the value of the gift.

    The word relief sounds like a reduction of what was given.

    Fix: Calculate the tax first, then reduce the tax by the taper percentage. The value stays as at the date of the gift.

  • Applying taper relief to a gift that is within the nil rate band.

    Students apply taper by habit as soon as death is more than three years after the gift.

    Fix: Taper only reduces tax. If the gift is fully covered by the nil rate band, there is no tax and no taper. The gift still uses up the band.

  • Forgetting that PETs count towards cumulation only if they fail.

    Students include all gifts from the start.

    Fix: On the date of a later gift, an earlier PET counts only if the donor has since died within seven years. In death calculations, treat it as a chargeable transfer.

  • Using the wrong seven-year look-back.

    Students look back from the date of death instead of the date of each gift.

    Fix: Look back seven years from each gift. Use the date of death only to decide whether the gift is re-taxed and to find the taper.

  • Not giving credit for lifetime tax on a CLT.

    Students only compute the death tax and stop.

    Fix: Deduct the lifetime tax paid from the death tax after taper. Never refund if the lifetime tax was higher.

  • Using the lifetime 20% rate on a failed PET.

    Students confuse lifetime and death rates.

    Fix: All failed PETs and CLTs are re-taxed at 40% on death. The 20% rate is only used when the CLT is made.

Worked examples

Example 1

Asha made a PET of £400,000 to her son on 1 June 2020, after annual exemptions. She had made no earlier transfers. She died on 1 March 2025. Calculate the IHT on the PET at death.

Show the solution
  1. The gift was made within seven years of death, so it is a failed PET.
  2. Nil rate band available: £325,000, as there were no earlier chargeable transfers.
  3. Excess: £400,000 − £325,000 = £75,000.
  4. Tax at 40%: £75,000 × 40% = £30,000.
  5. Time from gift to death: 1 June 2020 to 1 March 2025 is more than 4 but less than 5 years, so taper relief is 40%.
  6. Tax after taper: £30,000 × 60% = £18,000.
  7. The PET used all £325,000 of the nil rate band, so none is left for the death estate.

Answer: IHT on the failed PET is £18,000, payable by the son. The nil rate band is fully used, so none is left for the estate.

Example 2

Ben made a CLT of £500,000 to a discretionary trust on 1 August 2019. He had made no previous transfers. The trust paid the lifetime tax. Ben died on 1 February 2025. Calculate the additional IHT payable on death due to the CLT.

Show the solution
  1. Lifetime tax: (£500,000 − £325,000) × 20% = £175,000 × 20% = £35,000.
  2. Death tax on the CLT: excess over the nil rate band is £175,000 × 40% = £70,000.
  3. Time from gift to death: 1 August 2019 to 1 February 2025 is more than 5 but less than 6 years, so taper relief is 60%.
  4. Tax after taper: £70,000 × 40% = £28,000.
  5. Deduct lifetime tax paid: £28,000 − £35,000 is negative, so the additional tax is nil.
  6. No refund is given for the £7,000 excess lifetime tax.
  7. The CLT used all £325,000 of the nil rate band, so none is left for the death estate.

Answer: There is no additional IHT on death, and no refund of the £7,000 difference. The nil rate band is fully used.

Exam tips

  • Set out a dated list of gifts first. Marks are given for the 7-year look-back and for the correct order.
  • Write the taper percentage as a reduction of the tax, for example 40% reduction, and show 60% of the tax as payable. Do not mix these up.
  • State clearly who pays: the donee for a failed PET, and the trustees or donee for a CLT.
  • Always say how much nil rate band is left for the estate. Examiners often link the gift calculation to the death estate.
  • Use the tax tables supplied. Check the taper bands and the 20% and 40% rates there, and do not rely on memory.

Practice questions from Inheritance tax: the liabilities arising on chargeable lifetime transfers and on death

Additional Tax on Death and Taper Relief: frequently asked questions

How do I calculate additional IHT on a failed PET?

Work out the nil rate band left after chargeable transfers in the seven years before the gift. Tax the excess at 40%. Then reduce the tax by the taper relief percentage based on the time to death.

What are the IHT taper relief rates for 3 to 7 years?

The tax is reduced by 20% if death is more than 3 but less than 4 years after the gift. The reductions are 40%, 60% and 80% for the next three years up to 7. There is no relief within 3 years.

What is the difference between lifetime tax and death tax on a CLT?

Lifetime tax is charged at 20% on the excess over the nil rate band when the CLT is made. If the donor dies within seven years, the CLT is re-taxed at 40% with taper relief. You then deduct the lifetime tax already paid.

Can death within seven years ever reduce the tax on a CLT below what was paid?

Yes, because taper relief can make the death tax lower than the lifetime tax. There is no refund in that case. The additional tax is simply nil.