Your guide to UK inheritance tax and trusts 14 Taper relief The IHT rate(s) payable will depend on the number of complete calendar years between the date the gift (the chargeable lifetime transfer or potentially exempt transfer) was made and the date of the Settlor’s death. This is known as taper relief, as outlined below. Taper relief will only reduce the tax payable where the gift or cumulative total of gifts in the previous seven years is greater than the available nil-rate band. Gifts with reservation If you ‘gift’ an asset but retain some benefit, it may be treated as still being within your estate on death. The following are examples of such gifts: The gift of a property where you continue to live for your lifetime without paying rent to the beneficiary. The payment of premiums into a life assurance policy, written in trust since March 1986, where you are a potential beneficiary. If the benefit which you can enjoy ends during your lifetime, then you will be treated as having made a potentially exempt transfer on that date. However, if the benefit continues until your death, the trust fund will form part of your estate for IHT purposes. This is a brief summary of the IHT provisions under UK law. This does not cover every eventuality, so please consult your financial adviser before making any decisions. Example:- death in year 4-5: £100,000 x 40% = £40,000 x 60% = £24,000 (ie effective IHT rate is 24%). Number of years between the date of gift and death Proportion of 40% IHT payable Effective IHT rate on amounts over the nil‑rate band 0-3 100% 40% 3-4 80% 32% 4-5 60% 24% 5-6 40% 16% 6 -7 20% 8% 7+ 0% No tax to pay