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Advanced Taxation (UK) · Inheritance tax: the scope of inheritance tax

Chargeable Transfers and Transfers of Value in Inheritance Tax

Updated 11 October 2026 · Fact-checked

A transfer of value is any gift or event that reduces the value of the giver's estate. The value transferred is the loss to the donor: estate before less estate after. Omissions to act can count. A chargeable transfer is a transfer of value that is not exempt and is not a potentially exempt transfer (PET).

Understand Chargeable Transfers and Transfers of Value

Inheritance tax (IHT) is charged on transfers of value, not on gifts as such. A transfer of value is a disposition (or an omission) made by a person that reduces the value of their estate. The person making it is the transferor or donor.

The key measure is the loss to donor principle. You value the transferor's estate immediately before the transfer and immediately after it. The fall in value is the value transferred. It is not the value the recipient gets. Often the two are the same. They differ when the gift affects the value of what the donor keeps. For example, giving away one shareholding can cut the value of the shares the donor retains, so the loss to the donor is bigger than the value of the shares given.

A transfer of value can happen in life or on death. On death, the person is treated as making a transfer of value of their whole estate immediately before death. Lifetime transfers then fall into three groups: exempt transfers, which have no IHT; potentially exempt transfers (PETs), which are gifts by an individual to another individual (or to certain trusts) and which become chargeable only if the donor dies within seven years; and chargeable lifetime transfers (CLTs), such as most gifts into trusts, which are chargeable when made.

So a chargeable transfer is a transfer of value made by an individual that is not exempt and not a PET. Only chargeable transfers use up the nil rate band and attract tax. A PET that fails because the donor dies within seven years becomes chargeable at that point.

An omission to act can also be a transfer of value, but only in limited cases. The omission must be deliberate. As a result, the transferor's estate must fall in value while another person's estate, or a trust, increases in value. If both conditions are met, the omission is treated as a disposition made at the time the right could last have been exercised. An example is deliberately letting a right lapse. A failure that is not deliberate, or one that does not increase someone else's estate or a trust, is not a transfer of value.

Key rules to remember

Value transferred (loss to donor)
Value transferred = Estate before transfer − Estate after transfer
Measure the fall in the donor's estate, not the gain to the recipient. Use the value of the estate, which may include related property effects.
Chargeable transfer
Transfer of value − exemptions and reliefs, and not a PET = chargeable transfer
Only transfers that are not exempt and not PETs are chargeable when made.
Nil rate band and rates (from ACCA tax tables)
Nil rate band £325,000; excess taxed at 20% (lifetime) or 40% (death)
Lifetime rate of 20% applies to CLTs. Death rate of 40% applies to the estate and to chargeable transfers taxed on death.
Taper relief (from ACCA tax tables)
More than 3 but less than 4 years 20%; more than 4 but less than 5 years 40%; more than 5 but less than 6 years 60%; more than 6 but less than 7 years 80% reduction in the death tax payable
Taper relief applies only where the donor dies within seven years of a chargeable lifetime transfer or a failed PET. It reduces the tax payable at the death rate, not the value transferred. It only helps where the transfer is above the nil rate band. If death is within three years of the transfer, there is no reduction.
Death treated as a transfer
Value transferred on death = value of the whole estate immediately before death
The deemed transfer is made immediately before death.

How to solve Chargeable Transfers and Transfers of Value questions

Use this method for any question asking whether there is a transfer of value and what it is worth.

  1. 1Identify the event: a gift, a sale at undervalue, a lapse of a right, a transfer into trust, or death.
  2. 2Check there is a reduction in the transferor's estate. If nothing falls in value, there is no transfer of value.
  3. 3Value the estate before the event, then after it, and take the difference. Watch for effects on retained assets.
  4. 4Classify the transfer: is it to an individual (likely a PET), into a trust (likely a CLT), or on death?
  5. 5Apply any exemptions, such as annual exemption, in the order the question needs, to find the chargeable amount.
  6. 6If it is a CLT, compare with the nil rate band and apply the 20% lifetime rate to the excess. State the death position if the donor dies within seven years.
  7. 7Write a clear conclusion. State your assumptions, for example about the donor's earlier transfers.

Quickest way: Before and after test

When to use it: Use when the question gives you values for assets held before and after a gift, or a sale at below market value.

  1. Write 'Before' and 'After' as two lines.
  2. Put the full value of the estate on each line.
  3. Subtract to get the value transferred.
  4. Label it PET, CLT or death transfer in one word.
  5. Move on to exemptions and tax only if the question asks.

Common mistakes in Chargeable Transfers and Transfers of Value

  • Valuing the transfer at what the recipient receives instead of the fall in the donor's estate.

    Students are used to CGT, where proceeds or market value of the asset disposed of is what matters.

    Fix: Always do the before and after estate valuation. Compare the answer with the asset value and explain any difference.

  • Treating every gift as a chargeable transfer.

    The word chargeable is used loosely.

    Fix: A chargeable transfer is a transfer of value that is not exempt and not a PET. Most gifts to individuals are PETs with no tax when made.

  • Ignoring omissions to act.

    Students think a transfer needs a positive act.

    Fix: Look for lapsed rights, options or debts left unclaimed. If the estate falls in value through a deliberate omission and someone benefits, treat it as a transfer.

  • Saying there is a transfer of value when the estate does not fall.

    Students see a gift and assume tax follows.

    Fix: If the donor receives full value in exchange, the loss is nil. Check the before and after values, and the intention to confer a gratuitous benefit where a sale is at undervalue.

  • Forgetting that death itself is a deemed transfer of the whole estate.

    Students focus on lifetime gifts.

    Fix: State that on death the estate is treated as transferred immediately before death, then apply the 40% death rate above available nil rate band.

Worked examples

Example 1

Anita owns 70% of the shares in a trading company. These shares are worth £700,000. If she held only 40%, the shares would be worth £240,000. She gives 30% of the company to her son. Her other assets are worth £400,000. What is the value transferred? Ignore business property relief and any exemptions, as the question asks only for the value transferred.

Show the solution
  1. Before the gift: 70% holding £700,000 plus other assets £400,000 = £1,100,000.
  2. After the gift: she holds 40%, worth £240,000, plus other assets £400,000 = £640,000.
  3. Value transferred = £1,100,000 − £640,000 = £460,000.
  4. The son receives a 30% holding, but the loss to Anita is larger than the value of what he receives, because she lost control.
  5. Business property relief could apply to shares in a trading company. It is ignored here, as the question asks only for the value transferred.

Answer: The value transferred is £460,000, before any reliefs or exemptions. As the gift is to an individual it is a PET, so no tax arises unless Anita dies within seven years.

Example 2

Raj has a right to subscribe for shares which will lapse tomorrow. The right is worth £30,000. He deliberately lets it lapse and as a result his brother's shareholding increases in value by £30,000. Is there a transfer of value, and how much?

Show the solution
  1. Raj deliberately lets a right lapse. This is an omission to act.
  2. His estate falls by £30,000, the value of the lapsed right.
  3. His brother's estate increases as a result, so the omission is treated as a disposition made when the right could last have been exercised.
  4. The value transferred is the loss to Raj, which is £30,000.
  5. The transfer is to an individual, so it would normally be a PET.

Answer: Yes. There is a transfer of value of £30,000, treated as made at the time the right could last have been exercised. It is likely a PET.

Exam tips

  • Always show the before and after values. Marks are given for the working even if the final figure is wrong.
  • Check retained assets. Questions on shares or related property often hide a bigger loss than the gift value.
  • Read the question for the word omission, lapse, option or waive. These signal an omission to act.
  • Take rates and nil rate band from the tax tables. Do not rely on memory.
  • Add a professional skills point: state assumptions and give clear advice on whether the transfer is a PET or a CLT.

Practice questions from Inheritance tax: the scope of inheritance tax

Chargeable Transfers and Transfers of Value in other exams

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

Chargeable Transfers and Transfers of Value: frequently asked questions

What is a transfer of value for inheritance tax?

It is a disposition, or a deliberate omission to act, that reduces the value of a person's estate. The value transferred is the fall in the estate. Death is also treated as a transfer of the whole estate.

What is the loss to donor principle?

It means the value transferred is measured by how much the donor's estate falls, not by what the recipient receives. You value the estate before and after the transfer and take the difference.

Is every transfer of value chargeable?

No. A transfer of value is chargeable only if it is not exempt and not a PET. Gifts to individuals are usually PETs, which become chargeable only if the donor dies within seven years.

Can failing to do something be a transfer of value?

Yes. If you deliberately let a right lapse and your estate falls in value while someone else benefits, it can be treated as a disposition. A simple failure with no resulting loss, or no benefit to another, would not count.