Taper relief reduces the inheritance tax charged on a lifetime gift when the donor dies between three and seven years after making it, cutting the rate from 40% to between 32% and 8%. It reduces only tax charged on the gift itself, so a gift that fits within the nil rate band gets no benefit, and the estate’s own tax bill is never reduced.

What is taper relief?

Taper relief is set out in section 7(4) of the Inheritance Tax Act 1984 (IHTA 1984). When a chargeable transfer was made within seven years of death but more than three years before it, the tax is charged at a percentage of the full death rates:

Time between gift and death Percentage of full tax Effective rate
Up to 3 years 100% 40%
More than 3, up to 4 years 80% 32%
More than 4, up to 5 years 60% 24%
More than 5, up to 6 years 40% 16%
More than 6, up to 7 years 20% 8%
7 years or more Not chargeable 0%

The effective rates match those in GOV.UK’s inheritance tax guidance. HMRC’s Inheritance Tax Manual at IHTM14611 makes a point that is easy to miss: although it is called a relief, it is a percentage reduction in the tax otherwise payable on the transfer. It does not reduce the value of the gift.

When does taper relief apply?

HMRC (IHTM14611) says two conditions must both be met:

  • the transfer was made more than three years before the donor’s death
  • tax is due on the transfer in its own right

The second condition does most of the work. A failed gift only carries tax in its own right if, cumulated with chargeable transfers in the seven years before it, it exceeds the nil rate band at the date of death. GOV.UK puts it plainly: taper relief only applies if the total value of gifts made in the seven years before death is over the £325,000 threshold.

Why does taper relief so often have no effect?

There are four common reasons.

  1. The gift is within the nil rate band. HMRC’s first example at IHTM14611 is a £300,000 gift made just over three years before death. It is below the £325,000 band, no tax is attributable to it, and there is nothing for taper relief to reduce.
  2. A transferred band absorbs it. HMRC’s same example goes on: if the personal representatives can claim a full transferable nil rate band from a late spouse, the band at death becomes £650,000, the gifts fall below it, and again no taper relief applies.
  3. The estate still pays full rate. Taper relief does not reduce the value of the gift for cumulation. A gift of £325,000 made six years before death still uses the whole nil rate band, and the death estate is taxed at 40% on everything above whatever band is left. The relief does nothing for the estate.
  4. The gift was into trust and lifetime tax was paid. Section 7(5) says that if the tapered death tax on a chargeable lifetime transfer is less than the lifetime tax already charged at 20%, taper relief does not apply. No refund is given. In practice, extra tax only arises on such a gift where the donor dies within five years, because from that point the tapered rate is at or below the 20% already paid.

Where the nil rate band is used up by gifts, the residence nil rate band still protects part of the estate, because it is never set against gifts.

How is the period between gift and death counted?

HMRC uses calendar years from the date of the gift, not tax years (IHTM14612). IHTM14613 adds that if death falls on an anniversary of the gift, HMRC treats it as falling in the next band. Its example is a gift on 7 April 2007 and death on 7 April 2012, which HMRC places in the five to six year band, so tax is charged at 40% of the full rate. When dates are close to an anniversary, check them carefully against the gift documents and the death certificate.

Worked example: HMRC’s figures

HMRC’s example at IHTM14612: Julia gives away £375,000 on 1 February 2009 and dies on 20 June 2012, when the nil rate band is £325,000.

Step Amount
Gift above the nil rate band £50,000
Full tax at 40% £20,000
Gift made 3 to 4 years before death, so 80% charged £16,000
Taper relief saved £4,000

The relief saved £4,000 on a gift of £375,000. Julia’s death estate, whatever its size, had no nil rate band left and was taxed at 40% throughout.

Worked example: gifts below and above the band

Illustration only. Priya, who is unmarried, gives £200,000 to her son six and a half years before her death, then £200,000 to her daughter four and a half years before her death. No exemptions are available. Her estate is £300,000.

  • The gift to her son is within the £325,000 band. No tax is attributable to it and taper relief has nothing to act on.
  • The gift to her daughter is cumulated with the earlier gift. £75,000 of it is above the band. Full tax would be £30,000. It was made four to five years before death, so 60% is charged: £18,000. The daughter is liable for this.
  • The estate of £300,000 has no band left and pays 40%, which is £120,000.

Taper relief saved £12,000 in total, all on the daughter’s gift. The seven year rule page explains why the recipient, not the estate, pays tax on the gift itself.

How is taper relief different from fall in value relief?

They are separate. Section 131 IHTA 1984 lets the person liable claim to have the tax on a failed gift worked out on a lower value if the gifted asset is worth less at the date of death, or when it was sold in a qualifying sale, than when it was given. HMRC notes at IHTM14518 that this reduction does not change the value used for cumulating later transfers, including the death estate. Taper relief reduces the rate. Fall in value relief reduces the value. Both can apply to the same gift.

What mistakes come up most often?

  • Telling a client that gifts become cheaper each year after three years regardless of size. That is only true for the part above the nil rate band.
  • Applying taper relief to the estate. It applies to tax on gifts only.
  • Counting tax years rather than calendar years from the date of the gift.
  • Expecting a refund of lifetime tax on a trust gift when the tapered figure is lower.
  • Forgetting a late spouse’s transferable band, which can remove the tax on gifts and with it any taper relief.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.