What is taper relief?

Taper relief provides a reduction in the amount of inheritance tax (IHT) payable by the recipient of a lifetime gift, rather than reducing the tax due on the estate itself. It applies where the value of the gift, either on its own or when combined with other chargeable transfers, exceeds the nil-rate band (NRB), and certain conditions are met. Taper relief is, therefore, an important consideration in IHT planning for individuals making substantial lifetime gifts. Understanding how taper relief works, and how it interacts with the 7-year rule, is key to making the most of inheritance tax allowances and reducing the eventual tax burden on your estate.

While many people know that their estate may be subject to IHT after death, fewer realise how lifetime gifting and timing can influence the amount of tax ultimately paid.  Taper relief is designed to decrease the tax liability payable by the recipients on gifts made, once over 3 years have passed.

The 7-year rule and potentially exempt transfers

When someone gives a financial gift or transfers assets to another person during their lifetime, that transfer may be classed as a potentially exempt transfer (PET). If the donor survives for at least seven years after making the gift, it becomes fully exempt from inheritance tax. After seven years, the gift is completely outside the estate for IHT purposes and no tax is payable on it.

However, if the donor dies within seven years of making the gift, the value of the gift is brought back into their estate for IHT calculations. This is where the 7-year rule becomes important. If death occurs within that period, the timing of the gift determines whether any tax is due and whether taper relief can apply.

How taper relief works

Taper relief applies when someone dies between three and seven years after making a gift, and that gift, when cumulated with Chargeable Lifetime Transfers (CLTs) or failed PETs in the 7 years before it, exceed the NRB. It does not reduce the value of the gift, but rather the amount of tax payable by the recipients of the gift. The longer the donor survives, the greater the reduction in tax. If the donor survives for between three and four years, the tax due on that gift is reduced by 20%. It is reduced by a further 20% on each subsequent year and between six and seven years, the reduction is 80%. After seven years, there is no tax due on the gift.

To illustrate, consider someone who gives £500,000 to their daughter and dies five and a half years later. The NRB at the time of death is £325,000. The gift uses up the NRB first, leaving £175,000 exposed to IHT in the hands of the beneficiaries of the gift, being the daughter. Because the death occurred between five and six years after the gift, taper relief reduces the IHT rate on that portion by 60%. Instead of paying the full 40%, the effective tax rate is only 16%. The result is an IHT bill, payable by the daughter, of £28,000 on that portion of the gift rather than £70,000 without taper relief.

The nil-rate band and a common misunderstanding

It is important to understand that taper relief only applies to the portion of a gift that exceeds the nil-rate band. Gifts within the NRB limit - of £325,000 reduce the NRB on the estate or up to £650,000 if there's any transferable NRB available from a previously deceased spouse. However, this does not mean that such gifts are automatically “safe” if the donor dies within seven years, as the estate will have a reduced NRB.

If you give away an amount equal to or less than the nil-rate band and die within seven years, that gift uses up your NRB (or a portion of it). This means the NRB is no longer available to offset IHT on your remaining estate. As a result, the estate itself may face a larger tax bill. The real advantage only arises if you survive for the full seven years, at which point the gift falls completely outside your estate and your NRB is effectively restored for use against other assets.

For example, if someone gifts £300,000 and dies five years later, there may be no tax directly payable on that gift, as it falls within the NRB. However, their estate would no longer have the benefit of the £325,000 threshold as they would only have £25,000 left, meaning more of the remaining estate could be taxed at 40%. In this way, making a gift of up to the NRB only provides a tax advantage if the donor survives seven years. Before then, it merely shifts how the NRB is used as it is now effectively in the hands of the recipients of the gift.

The role of gifting in estate planning

Gifting can be an effective way to reduce the value of an estate for inheritance tax purposes. By transferring assets during their lifetime, individuals can start moving wealth out of their estate, provided they survive long enough for the gifts to fall outside IHT calculations.

Certain gifts are immediately exempt, regardless of when the donor dies. These include small gifts up to £250 per person, an annual exemption of up to £3,000, and gifts made in connection with a marriage or civil partnership. Regular gifts made from surplus income may also be exempt, provided they meet the necessary conditions. Larger gifts that exceed these exemptions are treated as potentially exempt transfers (if made to other individuals or to bare trusts/vulnerable beneficiary trusts) and will be subject to the 7-year rule and, if relevant, taper relief.

Unlike PETs, CLTs can attract an immediate IHT charge if the value of the transfer exceeds the available NRB at the time of the gift. CLTs also remain subject to the 7-year rule and taper relief, meaning that if the donor dies within seven years of making the transfer, the full tax implications are reassessed, potentially resulting in additional IHT being due. 

	Annual gifting exemption You can give away a total of £3,000 worth of gifts each tax year, known as your ‘annual exemption’. It can be gifted to one person or split between several people. If you didn’t use the exemption in the previous tax year, you can carry it forward for one year and combine it with the exemption for the current tax year and gift up to £6,000.
	Small gifts You can give as many small gifts of up to £250 per person as you like each tax year – just make sure you haven't gifted more than £250 to that person in that tax year.
	Wedding gifts You can give a tax-free gift to someone who’s getting married or entering a civil partnership. The limits are £5,000 to a child £2,500 to a grandchild/ great grandchild £1,000 to anyone else. If you’re gifting to the same person, you can combine this wedding gift allowance with your annual exemption, but not with the small gift allowance. For example, you could give your child £5,000 as a wedding gift and an additional £3,000 using your annual exemption, all in the same tax year.
	Gifts to charities and political parties Gifts to registered charities and political parties are exempt from inheritance tax.
	Gifts from income You can make regular gifts from your surplus income as long as they don't affect your normal standard of living. Any gifts must form part of your normal expenditure, meaning that there must be an observable, regular pattern, should HMRC decide to audit any records. Examples of a gift out of regular income might include covering your child’s rent, or paying into a savings account for a child under 18. These gifts have to be claimed by the executors after death, so clear details would need to be supplied by them when claiming (IHT403). You can combine this exemption with other allowances (like your annual exemption) when giving to the same person - just not with the small gift allowance. For instance, you could pay your son’s monthly rent from surplus income while also giving him a one-off £3,000 gift using your annual exemption.
	Lifetime gifts Potentially Exempt Transfers (PETs) and gifts into Trust: Both are lifetime gifts for inheritance tax purposes and will be affected by the seven-year rule. Some gifts into trust are PETs, and some are Chargeable Lifetime Transfers (CLTs), depending on trust type.

When planning gifts, the timing and amount are both critical. Giving earlier increases the likelihood of surviving the full seven years, ensuring the gift is completely outside the estate. Taper relief offers a useful reduction if that goal isn’t quite reached, but it only applies to the taxable portion above the nil-rate band and only after three years have passed.

Why taper relief matters

Taper relief serves as a cushion for families, softening the impact of inheritance tax if the donor passes away before the full seven years have elapsed. While it should not be relied on as a primary strategy, it can make a meaningful difference to the eventual IHT bill in certain circumstances. Importantly, it should be understood as part of a wider estate planning approach, not a standalone solution.

Effective inheritance tax planning involves balancing gifts, exemptions, and the timing of transfers in a way that fits your personal and financial circumstances. Reviewing your estate plan regularly and taking professional advice can help ensure your intentions are met in the most tax-efficient way possible.

How we can help

Taper relief and the 7-year rule form a core part of inheritance tax planning in the UK. Knowing how they work together is essential for anyone considering lifetime gifting as part of their estate strategy. A qualified financial planner can help you understand how taper relief interacts with the nil-rate band, ensure gifts are structured effectively, and make the most of available allowances.

If you would like to explore how gifting and inheritance tax planning could benefit your situation, get in touch for an initial consultation with one of our experts.

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The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice. 

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. 

The above is for information only and does not constitute advice.