Chargeable Lifetime Transfers

Key facts

A CLT is typically a gift into a discretionary trust or other relevant property trust.
If the CLT (plus any other CLTs in the previous 7 years) exceeds the NRB, an immediate charge of 20% applies on the excess.
If the donor dies within 7 years, the CLT is recalculated at the death rate (40%), with credit for any lifetime tax already paid.
The nil-rate band is shared between CLTs and PETs in chronological order.
From 6 April 2026, the 100% BPR/APR relief on trust transfers is capped in line with the £2.5 million allowance.

What Is a Chargeable Lifetime Transfer?

A chargeable lifetime transfer (CLT) is any gift made during a person’s lifetime that is not a potentially exempt transfer (PET) and is not covered by an exemption. In practice, the most common CLTs are gifts into discretionary trusts and other relevant property trusts.^[1]

Unlike PETs (which are only charged if the donor dies within 7 years), CLTs are immediately chargeable at the lifetime rate of 20% on any amount exceeding the available nil-rate band.^[2]

When Do CLTs Arise?

Common situations that create CLTs include:

Gifts into discretionary trusts
Gifts into interest-in-possession trusts created after 22 March 2006
Additions of property to an existing relevant property trust
Transfers of value by close companies that increase the value of a participator’s estate

Calculating the Lifetime Charge

The lifetime IHT charge on a CLT works as follows:^[2]

Add up all CLTs made in the previous 7 years
Deduct the nil-rate band (£325,000 for 2026/27)
The excess is charged at 20% (the lifetime rate)

Example: James settles £425,000 into a discretionary trust in July 2025. He has made no other CLTs in the previous 7 years. The first £325,000 is covered by the NRB. The excess is £100,000. Lifetime IHT: £100,000 × 20% = £20,000.

Grossing Up

If the donor pays the lifetime IHT (rather than the trustees), the tax payment itself is treated as an additional gift. The CLT must be “grossed up” to include the tax:^[3]

The grossing-up formula at the 20% lifetime rate means the effective rate becomes 25% of the net gift (because 20% of the gross amount equals 25% of the net).

Who Pays Tax	Effective Rate on Excess	Grossing Up?
Trustees pay from trust fund	20%	No
Donor pays	25% (effective)	Yes — the tax is part of the transfer

If the Donor Dies Within 7 Years

If the donor dies within 7 years of making a CLT, the transfer is recalculated at the death rate of 40% (rather than the lifetime rate of 20%):^[2]

The CLT is recalculated using the NRB available at the date of death
Any excess is taxed at 40%
Credit is given for the lifetime tax already paid (the 20% charge)
Taper relief applies if the donor survived more than 3 years, reducing the additional tax
There is no refund if the recalculation produces a lower figure than the lifetime tax

CLTs and the Nil-Rate Band

CLTs and PETs both use up the nil-rate band. They are set against the NRB in chronological order:

The oldest chargeable transfer in the 7 years before death uses the NRB first
Subsequent transfers use whatever NRB remains
The estate at death uses any NRB left after lifetime transfers

Planning point: Making CLTs within the nil-rate band (£325,000) means no lifetime IHT is payable. If you survive 7 years, the NRB is fully “refreshed” for further transfers. This is the basis of many IHT planning strategies involving trusts.

Frequently Asked Questions

What is a chargeable lifetime transfer?

A chargeable lifetime transfer (CLT) is a gift made during a person’s lifetime that is immediately chargeable to IHT. The most common example is a gift into a discretionary trust. Unlike PETs, CLTs are not “potentially” exempt — they are chargeable from the outset, though the lifetime rate is 20% (half the death rate).

Who pays the 20% lifetime charge?

The lifetime IHT can be paid by either the donor or the trustees. If the donor pays the tax, the payment itself is treated as an additional gift, which increases the chargeable amount (“grossing up”). If the trustees pay from the trust fund, no grossing up is needed.

What happens if the donor dies within 7 years of a CLT?

The CLT is recalculated using the death rate (40%) instead of the lifetime rate (20%). Credit is given for any lifetime tax already paid. Taper relief applies if the donor survived more than 3 years. The result may be additional tax to pay, or sometimes a refund.

Can I make a CLT within the nil-rate band with no tax to pay?

Yes. If your CLT (plus any CLTs and failed PETs in the previous 7 years) totals £325,000 or less, no lifetime IHT is due. This is the most common scenario — many people settle trusts with values within their available nil-rate band.

Sources

Inheritance Tax: gifts — GOV.UK
IHTM14501 – Lifetime transfers: chargeable lifetime transfers — HMRC
IHTM14601 – Grossing up — HMRC