Taper Relief

Q: Does taper relief reduce the value of the gift?

No. Taper relief reduces the tax charged on the gift, not the value of the gift itself. The full value of the gift still uses up the nil-rate band. Taper relief only reduces the actual IHT payable on any amount above the NRB.

Key facts

Taper relief reduces the tax rate on failed gifts made 3–7 years before death.
It reduces the tax by 20% for each year beyond 3 years (80%, 60%, 40%, 20%).
Taper relief only applies when the gift exceeds the nil-rate band — it does not reduce the value of the gift.
Gifts within the NRB do not benefit from taper relief because there is no tax to reduce.
Taper relief applies to both failed PETs and CLTs reassessed on death.

What Is Taper Relief?

Taper relief is a reduction in the amount of IHT charged on gifts that were made between 3 and 7 years before the donor’s death. It is designed to provide a graduated transition between the full charge (on gifts within 3 years of death) and full exemption (on gifts more than 7 years before death).^[1]

Common misconception: Many people believe taper relief reduces the value of a gift for IHT purposes. It does not. It reduces the rate of tax applied. The gift’s full value still counts against the nil-rate band.

Taper Relief Table

Years Between Gift and Death	Percentage of Full Tax Charged	Taper Reduction	Effective Rate (if 40% applies)
0 – 3 years	100%	0%	40%
3 – 4 years	80%	20%	32%
4 – 5 years	60%	40%	24%
5 – 6 years	40%	60%	16%
6 – 7 years	20%	80%	8%

How Taper Relief Works in Practice

Taper relief applies only to the tax payable on a failed gift. Here is the step-by-step process:^[2]

Identify all chargeable transfers (failed PETs and CLTs) in the 7 years before death
Set them against the NRB in chronological order
Calculate the IHT at the full death rate (40%) on any excess
Apply the taper relief percentage based on when the gift was made

Example: Margaret gives £525,000 to her son in February 2020. She dies in November 2025 (5 years and 9 months later). The gift exceeds the NRB by £200,000. IHT at 40% = £80,000. Taper relief for 5–6 years = 60% reduction. Tax due: £80,000 × 40% = £32,000.

When Taper Relief Does Not Help

Taper relief is often less useful than people expect because:

No tax to reduce: If the gift is within the NRB, no IHT is charged — so there is nothing for taper relief to reduce
NRB absorption: The gift still uses up the NRB at its full value, which may mean the estate itself has less or no NRB available
Only benefits large gifts: Taper relief only applies to the extent that cumulative gifts exceed £325,000

Taper Relief on CLTs

Taper relief also applies to CLTs when the donor dies within 7 years and the tax is recalculated at death rates:^[2]

The CLT is recalculated at 40%
Taper relief is applied to reduce the recalculated tax
Credit is given for the lifetime tax already paid (at 20%)
If the tapered death tax is less than the lifetime tax, no refund is given

Frequently Asked Questions

Does taper relief reduce the value of the gift?

No. Taper relief reduces the tax charged on the gift, not the value of the gift itself. The full value of the gift still uses up the nil-rate band. Taper relief only reduces the actual IHT payable on any amount above the NRB.

Can taper relief reduce the IHT to zero?

Taper relief can reduce the tax significantly but it operates in bands, not as a continuous reduction. The maximum reduction is 80% (for gifts 6–7 years before death). After 7 years, the gift is fully exempt and no tax applies at all.

Does taper relief apply to gifts within the nil-rate band?

No. If a gift is within the available nil-rate band, no IHT is charged, so there is no tax for taper relief to reduce. Taper relief only helps when the cumulative total of gifts exceeds the NRB.

Sources

Inheritance Tax: gifts and taper relief — GOV.UK
IHTM14711 – Taper relief — HMRC