Inheritance Tax

Start with the full estate, not a single asset

Inheritance Tax planning can involve Wills, lifetime gifts, property ownership, pensions, life insurance and trusts. A change that helps one objective can create tax, control or care-fee consequences elsewhere, so isolated “tax-saving” steps should be considered carefully.

How does taper relief on gifts work?

Non-exempt lifetime gifts generally use the available standard Nil Rate Band before the estate. If a gift exceeds the available band and the donor dies within seven years, tax may arise on the excess. Surviving more than three years can reduce that gift tax through taper relief. It does not reduce the gift value or restore the allowance used by the gift.

With a full £325,000 standard band, no transferred band or earlier transfers, and ignoring gift exemptions, a £250,000 gift normally has no tax on the gift but leaves £75,000 of the band for the estate. A £400,000 gift leaves £75,000 above the band: tax on that excess could be £30,000 for death within three years, or £18,000 after four years and six months. The remaining estate is calculated separately.

The residence allowance cannot shelter lifetime gifts. Its separate taper reduces that allowance for estates over £2 million; it is different from gift taper relief. Transferred unused standard allowances and earlier transfers can change the result.

Read the taper-relief table and worked examples → or see HMRC guidance on tax due on gifts.

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