A chargeable lifetime transfer is a gift made during your lifetime that is immediately liable to inheritance tax. In practice it almost always means putting money or assets into a trust, most commonly a discretionary trust, where inheritance tax may be due at once rather than only on death.
If the value transferred sits within your available nil-rate band, no tax is payable straight away, but the transfer still counts and is recorded. If it goes above that band, an immediate charge applies at the lifetime rate of 20% where the trustees pay the tax (gov.uk, Trusts and Inheritance Tax, as at August 2026, subject to change). This guide explains how a chargeable lifetime transfer works, how it differs from an ordinary gift, and what happens if the person making it dies within seven years. It covers the law of England and Wales, and all figures are current as at August 2026 and subject to change.
What is a chargeable lifetime transfer?
A chargeable lifetime transfer, often shortened to CLT, is a transfer of value that is chargeable to inheritance tax at the time it is made. The typical example is a gift into a relevant property trust, such as a discretionary trust or a discretionary will trust set up during lifetime. Because the assets leave your estate but are not given outright to an individual, the transfer falls into a category that inheritance tax treats as immediately chargeable (gov.uk, Trusts and Inheritance Tax, as at August 2026, subject to change).
Not every lifetime gift is a chargeable lifetime transfer. Many outright gifts to another person are treated differently, as explained below. The label matters because it decides whether tax can be due immediately, how the gift interacts with your nil-rate band, and what reporting is expected.
Chargeable lifetime transfer, PET or exempt gift?
Lifetime gifts generally fall into one of three groups. The table sets out the broad position, though the detail can turn on the type of trust and the assets involved.
| Type of gift | Common example | Inheritance tax treatment |
|---|---|---|
| Chargeable lifetime transfer | Gift into most trusts, such as a discretionary trust | Immediately chargeable; tax at 20% on any amount above the available nil-rate band where trustees pay |
| Potentially exempt transfer (PET) | Outright gift to another individual | No tax when made; becomes exempt if you survive 7 years, otherwise counted on death |
| Exempt transfer | Gifts between spouses or civil partners, gifts within the annual exemption of £3,000 | No inheritance tax, within the relevant limits |
Sources: gov.uk, Trusts and Inheritance Tax; gov.uk, Inheritance Tax on gifts. As at August 2026, subject to change.
The difference matters because a potentially exempt transfer carries no immediate tax and drops out of account entirely if the giver lives for seven years, while a chargeable lifetime transfer can trigger tax straight away and stays relevant to the inheritance tax position from the moment it is made.
How the 20% lifetime charge works
When a chargeable lifetime transfer is more than the nil-rate band available to you, the excess is charged at the lifetime rate. Where the trustees settle the tax, that rate is 20% (gov.uk, Trusts and Inheritance Tax, as at August 2026, subject to change). This is half the standard 40% rate that applies to an estate on death (gov.uk, Inheritance Tax, as at August 2026, subject to change).
Who pays the tax changes the sum. If the person making the gift pays the lifetime tax personally rather than the trustees, the gift is treated as including that tax, a process called grossing up. This raises the effective rate on the net amount given to 25% (gov.uk, HMRC Inheritance Tax Manual IHTM14012, as at August 2026, subject to change). The example below is an illustration of the general method, not a calculation for any particular person.
| Who pays the lifetime tax | Rate on the amount above the nil-rate band | Why |
|---|---|---|
| Trustees | 20% | Tax is taken from the assets already in the trust |
| The person making the gift | 25% effective | The gift is grossed up to include the tax the giver pays |
Sources: gov.uk, Trusts and Inheritance Tax; gov.uk, HMRC Inheritance Tax Manual IHTM14012. As at August 2026, subject to change.
The nil-rate band and cumulation
Each person has a nil-rate band of £325,000, the amount that can pass free of inheritance tax before any charge applies (gov.uk, Inheritance Tax, as at August 2026, subject to change). This band, and the wider inheritance tax thresholds, are frozen until 5 April 2031, the end of the 2030-31 tax year, following the one-year extension announced at the Autumn Budget 2025 (gov.uk, Inheritance Tax: thresholds, as at August 2026, subject to change).
For chargeable lifetime transfers, the nil-rate band is not looked at in isolation. Inheritance tax adds up the chargeable transfers made in the seven years before each new gift, a principle known as cumulation. Earlier chargeable transfers use up part of the band first, so a later transfer may face tax even if it is well under £325,000 on its own. The residence nil-rate band, which can add up to a further £175,000, applies to a home passing to direct descendants on death and does not shelter a lifetime gift into a trust (gov.uk, Inheritance Tax, as at August 2026, subject to change).
A chargeable lifetime transfer is not a one-off event. It keeps counting against your nil-rate band for the following seven years and shapes the tax on gifts that come after it.
What happens if you die within 7 years
If the person who made a chargeable lifetime transfer dies within seven years, the transfer is looked at again. Tax is recalculated using the rates that apply on death, which can mean an additional charge on top of any lifetime tax already paid (gov.uk, Trusts and Inheritance Tax, as at August 2026, subject to change). Credit is given for the lifetime tax paid, so the same value is not charged twice at the full rate.
Where the transfer was made between three and seven years before death, taper relief may reduce the tax due. Taper relief reduces the tax on the gift, not the value of the gift itself (gov.uk, Inheritance Tax on gifts, as at August 2026, subject to change). The tapered rates are set out below.
| Years between gift and death | Taper relief applied to the tax |
|---|---|
| Less than 3 years | No reduction |
| 3 to 4 years | 20% reduction |
| 4 to 5 years | 40% reduction |
| 5 to 6 years | 60% reduction |
| 6 to 7 years | 80% reduction |
Source: gov.uk, Inheritance Tax on gifts. As at August 2026, subject to change. Taper relief only reduces tax where the total chargeable transfers exceed the nil-rate band.
Ongoing charges on the trust
A chargeable lifetime transfer into a relevant property trust can also bring longer-term charges on the trust itself, separate from the entry charge. Most such trusts face a periodic charge on each ten-year anniversary and an exit charge when assets leave the trust. Inheritance tax on these is charged up to a maximum of 6% of the value of the assets concerned (gov.uk, Trusts and Inheritance Tax, as at August 2026, subject to change). The actual figure is often lower, because the trust's own nil-rate band is taken into account first. Trustees are generally expected to report and pay any ten-year charge within six months of the anniversary.
Reporting a chargeable lifetime transfer
A chargeable lifetime transfer may need to be reported to HMRC even where no tax is due, particularly once the value approaches the nil-rate band. Reporting is usually done on form IHT100, and there are time limits for delivering the account and paying any tax (gov.uk, Inheritance Tax account IHT100, as at August 2026, subject to change). Because the rules on when a report is needed depend on the type of trust and the amounts involved, this is an area where many people take advice before acting.
- Lifetime rate where trustees pay: 20% on the amount above the available nil-rate band (gov.uk).
- Effective rate where the giver pays and the gift is grossed up: 25% (gov.uk IHTM14012).
- Nil-rate band: £325,000 (gov.uk), frozen until 5 April 2031 following the Autumn Budget 2025 extension (gov.uk, Inheritance Tax: thresholds).
- Standard rate on death: 40% (gov.uk).
- Maximum ongoing trust charge: up to 6% on ten-year anniversaries and exits (gov.uk).
Chargeable lifetime transfers sit within the wider picture of inheritance tax planning and, more broadly, how a complete estate plan fits together. If you are weighing up a trust, it can also be worth understanding how the same assets might otherwise be dealt with in a will. Our pricing page sets out how we agree fees before any work begins, and you are welcome to book a consultation to talk through your circumstances.
Scotland and Northern Ireland
Inheritance tax is a United Kingdom tax, so the 20% lifetime rate, the nil-rate band and the seven-year rule apply across the UK. The surrounding law differs. Scotland has its own rules on trusts and succession, and Northern Ireland operates a separate but broadly similar system to England and Wales. If your estate or a trust touches more than one jurisdiction, it can be worth taking advice in each.
Frequently asked questions
What is a chargeable lifetime transfer?
A chargeable lifetime transfer is a gift made during your lifetime that is immediately liable to inheritance tax, most commonly a gift of money or assets into a trust such as a discretionary trust. If the value is above your available nil-rate band, tax can be due at once at the lifetime rate of 20% where the trustees pay (gov.uk, as at August 2026, subject to change).
What is the difference between a CLT and a PET?
A chargeable lifetime transfer is usually a gift into a trust and can be taxed immediately. A potentially exempt transfer, or PET, is generally an outright gift to another individual with no tax when made, which becomes fully exempt if the giver survives seven years (gov.uk, as at August 2026, subject to change). The two are treated differently for tax and reporting.
How much tax is due on a chargeable lifetime transfer?
Tax is charged only on the part of the transfer above the available nil-rate band of £325,000. The rate is 20% where the trustees pay, or an effective 25% where the person making the gift pays and the gift is grossed up (gov.uk; gov.uk IHTM14012, as at August 2026, subject to change).
What happens to a CLT if I die within 7 years?
The transfer is reassessed using the rates that apply on death, which can produce an additional charge, with credit for any lifetime tax already paid. Where death is between three and seven years after the gift, taper relief may reduce the tax on the gift, not its value (gov.uk, as at August 2026, subject to change).
Does a chargeable lifetime transfer use my nil-rate band?
Yes. A chargeable lifetime transfer is set against your nil-rate band and, through cumulation, is added to any chargeable transfers in the previous seven years. This can reduce the band available for later gifts and for your estate on death (gov.uk, as at August 2026, subject to change).
Do I have to report a chargeable lifetime transfer to HMRC?
Often, yes, and sometimes even where no tax is due, usually on form IHT100 and within set time limits. Whether a report is needed depends on the type of trust and the amounts involved (gov.uk, Inheritance Tax account IHT100, as at August 2026, subject to change).