Taper relief is the mechanism by which HMRC reduces the amount of Inheritance Tax payable on a gift if the donor dies between three and seven years after making it. It is not a complete exemption — but it can significantly reduce the tax burden on large gifts made in the years before death.
The Taper Relief Rate Table
The reduction in IHT rate depends on how many years the donor survived after making the gift. In the first three years, the full 40% rate applies. From year three onwards, the rate reduces progressively: 32% (years 3–4), 24% (years 4–5), 16% (years 5–6), 8% (years 6–7), and 0% after seven years.
Important: taper relief reduces the tax on the gift itself — not the overall value of the gift added to the estate. If the gift falls within the available nil-rate band (£325,000), no IHT is payable regardless of when the donor dies, and taper relief is irrelevant.
A Worked Example
Suppose a parent gifts a property worth £500,000 to their child and dies four and a half years later. The gift exceeds the nil-rate band by £175,000. Without taper relief, IHT on that excess would be £70,000 (40%). With taper relief at the 4–5 year rate of 24%, the IHT is reduced to £42,000 — a saving of £28,000. Had the parent survived to year seven, the saving would have been the full £70,000.
Why Taper Relief Is Not a Reason to Delay
Some people mistakenly believe that taper relief makes it acceptable to delay gifting. In reality, the best outcome is always to start the seven-year clock as early as possible. Taper relief is a consolation for those who do not survive the full seven years — not a planning strategy in itself. The earlier the gift, the greater the potential tax saving.