IHT lifetime gifting and taper relief

A gift to another individual is a potentially exempt transfer (PET): no tax at all if the donor survives 7 years, but if they die within that window, the gift is added back into their estate for Inheritance Tax purposes. Whatever nil-rate band of £325,000 isn't already used up by earlier gifts in the previous seven years — 'cumulation' — is set against the PET first; only the excess over that is taxed, at 40% before any taper relief. Taper relief then only reduces the *tax* on that excess, and only if the gift itself already exceeds the available nil-rate band — it doesn't reduce the value of the gift, and a gift that dies within 3 years gets no taper relief at all. A gift into a discretionary trust works completely differently: it's a chargeable lifetime transfer (CLT), taxed immediately on any excess over the nil-rate band, at 20% if the trustees pay the tax or 25% if the donor does — there's no 7-year wait-and-see.