Inheritance Tax Act 1984 section 7

Rates

Section 7 sets out how the rates of inheritance tax are determined for chargeable transfers, including the cumulation principle, the reduced rate for lifetime transfers, and the taper relief that applies when a transferor dies within seven years of making a gift.

• Tax on chargeable transfers is charged by reference to the Table in Schedule 1: nil on the first £325,000 (the nil rate band) and 40% on the excess, with previous chargeable transfers in the preceding seven years aggregated to determine where on the table the current transfer falls.
• Lifetime chargeable transfers (those made before the transferor's death) are charged at half the full rate — that is, 20% instead of 40%.
• If the transferor dies within seven years of making a lifetime transfer, the full death rate applies, but taper relief reduces the charge progressively for transfers made more than three years before death — 80% of the full rate between three and four years, 60% between four and five years, 40% between five and six years, and 20% between six and seven years.
• Taper relief never increases the tax due: if the tapered amount would be less than the lifetime rate originally charged, the lifetime rate stands.