ACCA ATX UK Syllabus A3. Inheritance Tax - Taper Relief - Notes 2 / 7
What is taper relief?
This is:
It would be somewhat unfair if a donor did not quite live for seven years after making a gift with the result that the gift was fully chargeable to IHT.
Therefore, taper relief reduces the amount of tax payable where a donor lives for more than three years, but less than seven years, after making a gift. The reduction is as follows:
| Years before death | Percentage reduction % |
| Over three years but less than four years | 20 |
| Over four years but less than five years | 40 |
| Over five years but less than six years | 60 |
| Over six years but less than seven years | 80 |
Although taper relief reduces the amount of tax payable, it does not reduce the value of a gift for cumulation purposes.
The taper relief table will be given in the tax rates and allowances section of the exam.
Illustration:
Winnie died on 9 January 2025. She had made the following lifetime gifts:
2 February 2018 – A gift of £473,000 to a trust. The trust paid the IHT arising from this gift.
16 August 2021 – A gift of £320,000 to her son.
These figures are after deducting available exemptions.
The nil rate band for the tax year 2017/18 is £325,000, and for the tax year 2021/22 it is £325,000
IHT liabilities are as follows:
| Lifetime transfers | £ |
|---|---|
| 2 February 2018 | |
| Chargeable transfer | 473,000 |
| IHT liability | |
| 325,000 at nil% | 0 |
| 148,000 at 20% | 29,600 |
| 29,600 |
| 16 August 2021 | |
| Potentially exempt transfer | 320,000 |
Additional liabilities arising on death
| 2 February 2018 | |
|---|---|
| Chargeable transfer | 473,000 |
| IHT liability | |
| 325,000 at nil% | 0 |
| 148,000 at 40% | 59,200 |
| Taper relief reduction – 80% | (47,360) |
| 11,840 | |
| IHT already paid | (29,600) |
| Additional liability | 0 |
The taper relief reduction is 80% because the gift to the trust was made between six and seven years of the date of Winnie’s death.
Although the final IHT liability of £11,840 is lower than the amount of IHT already paid of £29,600, a refund is never made for life tax paid, it can only reduce the IHT liability to zero.
16 August 2021
| £ | |
| Potentially exempt transfer | 320,000 |
| IHT liability 320,000 at 40% | 128,000 |
| Taper relief reduction – 20% | (25,600) |
| 102,400 |
The taper relief reduction is 20% because the gift to the son was made between three and four years of the date of Winnie’s death.