IHT lifetime gifting and taper relief

Classify the gift first, because recipient decides regime. A gift to an INDIVIDUAL is a potentially exempt transfer: nothing happens now; survive seven years and it never happened for IHT; die within seven and it comes back into charge. A gift into a DISCRETIONARY TRUST is a chargeable lifetime transfer: taxed immediately on the excess over the nil-rate band, at 20% when the trustees pay or 25% when the donor does (the higher figure is grossing-up: a donor paying the tax is giving that much more away). For a failed PET, work in strict order: exemptions first (the £3,000 annual exemption, carried forward at most one year), then the nil-rate band — reduced by chargeable transfers in the seven years BEFORE this gift (cumulation: no fresh band per gift, but no assuming an old gift consumed all of it either), then 40% on what remains, then taper relief. Taper relief carries two conditions the exam tests relentlessly, so state them before the numbers arrive: it reduces the TAX, never the value of the gift; and it exists only where the gift itself exceeded the available nil-rate band — a gift fully covered by the band produces no tax, so there is nothing for taper to relieve, and 'taper relief' offered on such a gift is a trap. The schedule runs 20/40/60/80% for deaths in years 3–4, 4–5, 5–6 and 6–7 — strictly MORE than three years before relief begins.