Last updated: 16 October 2026
What is taper relief for inheritance tax?
Taper relief reduces the inheritance tax (IHT) due on a lifetime gift when the person who made it dies between three and seven years later. Most gifts to individuals are potentially exempt transfers (PETs). If you survive seven years, the gift is fully exempt. If you die sooner, the gift becomes chargeable and taper relief may cut the tax.
Taper relief rates
| Years between gift and death | Reduction in tax | Effective IHT rate |
| Less than 3 | 0% | 40% |
| 3 to 4 | 20% | 32% |
| 4 to 5 | 40% | 24% |
| 5 to 6 | 60% | 16% |
| 6 to 7 | 80% | 8% |
| 7 or more | Gift is exempt | 0% |
The problem with taper relief
Taper relief reduces the tax on the gift, not the value of the gift. Failed gifts use up the nil rate band (£325,000, frozen until 5 April 2031) first, in date order. If your gifts in the seven years before death total less than £325,000, no tax is charged on the gifts themselves, so there is nothing to taper. The gifts still use up the nil rate band, which pushes more tax onto the rest of your estate. Taper relief does not help with that.
Worked example
Priya gives her son £400,000 in cash and dies four and a half years later.
- Gift above the nil rate band: £400,000 minus £325,000 = £75,000
- Tax at 40%: £30,000
- Taper relief for 4 to 5 years: 40% off, so the tax falls to £18,000
- Her son pays the £18,000. Her estate has no nil rate band left, so everything else she owns is taxed at 40%, subject to the residence nil rate band and exemptions.
Exemptions that work better
- Annual exemption: £3,000 a year, plus last year’s unused amount
- Small gifts: up to £250 per person per year
- Wedding gifts: £5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else
- Normal expenditure out of income: regular gifts from surplus income, with good records
- Gifts to a spouse or civil partner and to charities
Planning points
Make large gifts early, as the seven-year clock starts on the date of the gift. Consider life insurance written in trust to cover the possible IHT on a gift for the seven years. Keep a record of every gift, its date and value, as executors must report gifts made in the seven years before death. From 6 April 2027 most unused pension funds will also count in the estate, which makes planning gifts more important.
Gifts with reservation
If you give something away but keep using it, such as giving your home to your children and still living there rent-free, it stays in your estate and taper relief does not apply.
Frequently asked questions
Who pays the tax on a failed gift?
The person who received the gift pays first. If they don’t, the estate can be liable.
Does taper relief apply to gifts into trust?
Yes, but trust gifts above the nil rate band pay 20% IHT when made, and more may be due on death within seven years.
Can taper relief reduce tax below zero?
No. It only reduces tax that would otherwise be due.
Do I need to report gifts while I am alive?
Not usually, unless they are gifts into trust above certain limits.
Related: gifting money to reduce IHT, IHT on a deceased person’s gift and gifting your home to children.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with lifetime gifts and inheritance tax planning. See our inheritance tax planning service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
