Many people think gifts shrink for inheritance tax purposes between years 3 and 7. They don’t.

Which is why most people get “tapering” wrong.

When you give money away during your lifetime, that’s called a 𝗴𝗶𝗳𝘁.

Every person has a nil rate band - currently £325,000. This is the portion of your estate (in addition to gifts you make in the seven years before death) that can pass without inheritance tax.

Here’s where the confusion begins.

A lot of people believe that once you’ve made a gift, the amount itself starts to shrink for tax purposes if you survive more than three years.

This is often referred to as “tapering” or “taper relief”.

That’s not true. The gift always stays the same.

Tapering only applies to the 𝘁𝗮𝘅 𝗯𝗶𝗹𝗹 that could be due if you die within 7 years.


🤔 So what’s the difference?


👉 𝗘𝘅𝗮𝗺𝗽𝗹𝗲 𝟭
You give your son £100,000.
You die 6.5 years later.
Because this £100,000 is within your £325,000 nil rate band, there’s no tax bill at all - meaning there’s nothing to shrink.

But it still matters:
That £100,000 has eaten into your band. Which means when the rest of your estate is assessed, there’s only £225,000 of nil rate band left.

And because any unused proportion can be transferred between spouses, it also means your partner will inherit a smaller band down the line.

So while there’s no immediate tax, it can reduce the IHT protection available to your family later by £100,000.


👉 𝗘𝘅𝗮𝗺𝗽𝗹𝗲 𝟮
You give away £500,000.
You die 6.5 years later.
The first £325,000 is covered by your nil rate band.
No tax on this part.
The remaining £175,000 is a chargeable transfer.

𝙏𝙝𝙞𝙨 is where tapering applies - it reduces the potential tax bill on the £175,000, because you died between years 3 and 7.

⸻

And that’s the key point:

❌ Tapering does 𝗻𝗼𝘁 reduce the size of the gift.
✅ Tapering only reduces the tax bill, and 𝗼𝗻𝗹𝘆 if your gifts already exceed £325,000.

For most families, tapering 𝗻𝗲𝘃𝗲𝗿 𝗮𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝗰𝗼𝗺𝗲𝘀 𝗶𝗻𝘁𝗼 𝗽𝗹𝗮𝘆.

It’s one of the biggest misconceptions around inheritance tax planning - and one that can cause unintended consequences if misunderstood.

If you’ve received or given gifts, it may be useful to double-check your position.

If you’re planning on giving or receiving gifts, it might be worth bookmarking this post for future reference.

If you’d like to discuss any of the topics raised here then we’d love to hear from you on 0330 056 3566 or by email.

The levels and bases of taxation, and reliefs from taxation, can change at any time.  The value of any tax relief is generally dependent on individual circumstances.

Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.