Taper relief sounds like a significant protection against Inheritance Tax on gifts — but it applies in far fewer situations than most people expect. Understanding exactly when and how it works is essential for planning. Here is the complete guide for 2026/27.
The 7-Year Rule: Recap
When you make a gift to an individual (a Potentially Exempt Transfer, or PET), it becomes fully exempt from Inheritance Tax if you survive 7 years from the date of the gift. If you die within 7 years, the gift is added back into your estate for IHT purposes.
Taper relief applies when the donor dies between 3 and 7 years after making a gift. It reduces the IHT charge — but only on the amount that would otherwise be taxed.
The Taper Relief Scale
| Years between gift and death | IHT rate applied | Reduction from 40% |
|---|---|---|
| Less than 3 years | 40% | None |
| 3–4 years | 32% | 20% off |
| 4–5 years | 24% | 40% off |
| 5–6 years | 16% | 60% off |
| 6–7 years | 8% | 80% off |
| 7 years or more | 0% | Fully exempt |
The Critical Point Most People Miss
Taper relief only applies to gifts that exceed the available nil-rate band.
The nil-rate band in 2026/27 is £325,000. Gifts are set off against the nil-rate band first — in chronological order, earliest first. Only the portion of gifts that exceeds the nil-rate band is actually charged to IHT, and only on that excess does taper relief reduce the rate.
Example where taper relief does NOT help
Peter gave his son £280,000 in 2023 (3 years before his death in 2026). His nil-rate band is £325,000.
- Gift: £280,000
- Nil-rate band available: £325,000
- Amount subject to IHT: £0 (the gift is fully within the nil-rate band)
- Taper relief applied: N/A — there is no tax to reduce
Taper relief makes no difference here. The gift was tax-free regardless.
Example where taper relief DOES help
Margaret gave her daughter £600,000 in June 2022, using up her entire nil-rate band (£325,000) and leaving £275,000 above it. She dies in August 2026 — 4 years and 2 months after the gift.
- Gift: £600,000
- Nil-rate band: £325,000
- Chargeable amount: £275,000
- Without taper relief: IHT = £275,000 × 40% = £110,000
- With taper relief (4–5 years): IHT = £275,000 × 24% = £66,000
- Taper relief saves: £44,000
Order of Gifts and the Nil-Rate Band
Where multiple gifts are made in the 7 years before death, they are set against the nil-rate band in chronological order — earliest gifts first. This means:
- Early gifts use up the nil-rate band
- Later gifts (which may have benefited from taper relief if they survived 3 years) may face full IHT because the nil-rate band was already consumed by earlier gifts
Worked example: Peter’s two gifts
Peter makes two gifts:
- 2019: £250,000 to his daughter (5 years before death in 2024)
- 2022: £200,000 to his son (2 years before death)
Nil-rate band: £325,000
Setting against nil-rate band:
- 2019 gift: £250,000 — absorbs £250,000 of NRB; remaining NRB = £75,000
- 2022 gift: £200,000 — £75,000 covered by remaining NRB; £125,000 chargeable
For the 2019 gift (5 years — taper: 16%):
- Only £0 is chargeable from this gift (covered by NRB) — taper relief irrelevant
For the 2022 gift (2 years — no taper):
- £125,000 chargeable at 40% = £50,000 IHT
The apparently “protected” 2019 gift used up all the nil-rate band, leaving the more recent gift fully exposed.
What Taper Relief Does Not Apply To
| Transfer type | Taper relief available? |
|---|---|
| PETs — outright gifts to individuals | Yes (if within 3–7 years) |
| Gifts into discretionary trusts (CLTs) | No |
| Gifts to companies | No |
| Assets caught by Gift with Reservation rules | No — 7-year clock never starts |
| Transfers to a spouse or civil partner | N/A — exempt entirely |
Why the Annual Exemptions Matter More Than Taper Relief
Rather than relying on taper relief (which requires surviving 3+ years and only helps above the nil-rate band), use annual exemptions to make gifts that are immediately outside your estate:
| Exemption | Amount | Notes |
|---|---|---|
| Annual gift exemption | £3,000/year | Carry forward 1 year unused — max £6,000 |
| Small gifts | £250 per person | Unlimited recipients; cannot combine with annual exemption |
| Gifts on marriage | £5,000 (parent), £2,500 (grandparent), £1,000 (other) | Per recipient, per event |
| Normal expenditure out of income | Unlimited | Must be from regular surplus income |
These exemptions do not rely on surviving any period — the gift is exempt immediately.
See our gifting shares to children IHT guide, gifting property to children IHT guide, and inheritance tax guide.