Inheritance tax taper relief
When taper relief applies and how it can reduce the tax that needs to be paid on lifetime gifts.
Taper relief causes a lot of confusion over when it applies and how it works.
To start with, although it is called taper ‘relief’, it is not strictly a relief as defined elsewhere in the Inheritance Tax Act 1984 (IHTA). It is actually a percentage reduction in the tax payable. It does not reduce the capital value of the gift – it only reduces the actual tax payable. Therefore, if there is no tax payable on death on a specific gift, you cannot claim taper relief to reduce the value of that gift.
Consequently, any gift which sits inside the available nil rate band (NRB) – currently up to £325,000 or up to £650,000 if a transferable nil rate band is available – cannot benefit from taper relief.
Taper relief (under IHTA/S7(4)) applies where:
- the gift was made more than three years but less than seven years before the transferor’s death, and
- tax is due on the gift in its own right
This document is based on Canada Life’s understandings of applicable legislation, law and current HM Revenue & Customs practice as at June 2024. It is provided solely for general consideration. The information regarding taxation is based on our understanding of current legislation, which may be altered and depends upon the individual financial circumstances of the investor. We recommend that investors take their own professional tax advice.