How Inheritance Tax treats gifts made during life — from potentially exempt transfers and chargeable lifetime transfers to the recalculation triggered when the donor dies within seven years.
A lifetime gift is never finally settled until seven years have passed, and what looked tax-free at the outset can generate a charge years later. This chapter begins by classifying gifts as potentially exempt transfers or chargeable lifetime transfers, then works through the immediate lifetime charge on a CLT, the seven-year cumulation rules that erode the nil rate band, and the reservation of benefit doctrine that catches donors who give property away but keep enjoying it. It also covers the normal expenditure out of income exemption before turning to what happens on death within seven years: the recalculation of tax on failed PETs and CLTs, the knock-on effect on the nil rate band including the 14-year cumulation trap, and taper relief for transfers made more than three years before death. It closes with credit for lifetime tax already paid, when the tax falls due, and who bears liability after the donor's death.
