A chargeable lifetime transfer, or CLT, is a gift charged to inheritance tax straight away, at a lifetime rate of 20% on anything above your available nil-rate band. In practice a CLT almost always means putting money or assets into a discretionary trust: the one type of gift that is neither exempt nor "potentially exempt" (gov.uk, as at August 2026, subject to change).
What counts as a chargeable lifetime transfer?
A chargeable lifetime transfer is a gift into a relevant property trust, chiefly a discretionary trust. It is "chargeable" because inheritance tax can apply the moment you make it, unlike an outright gift to a person, which is potentially exempt and usually tax free if you survive seven years.
Most everyday gifts are either exempt (such as the £3,000 annual exemption) or potentially exempt. A transfer into a discretionary trust falls outside both, so it enters the inheritance tax system on day one. Transfers into a bare trust or a trust for a disabled person are treated differently and are usually not CLTs (gov.uk / HMRC, as at August 2026, subject to change).
How much tax do you pay on a CLT?
You pay 20% on the value of the transfer above your available nil-rate band, currently £325,000. Gifts inside the band carry no immediate tax. The catch: if you pay the tax yourself rather than the trustees, the tax is itself a further gift, so it is "grossed up" and the effective rate on the excess rises to 25%.
The nil-rate band is £325,000 per person and is frozen until 5 April 2031, extended at Budget 2025 on 26 November 2025 (gov.uk, as at August 2026, subject to change). CLTs from the previous seven years use up that band first, so a later transfer can be taxed even when it looks modest. Who settles the bill changes the figure:
| Who pays the lifetime tax | Rate on the excess above the band | Effect on your estate |
|---|---|---|
| The trustees (from the trust fund) | 20% | Trust holds less; your estate is not further reduced |
| You, the person making the gift | 25% (grossed up) | Tax leaves your estate too, so more value is moved out |
Source: gov.uk / HMRC, as at August 2026, subject to change.
Worked example: a £425,000 gift into a discretionary trust
You settle £425,000 into a discretionary trust, with no CLTs in the previous seven years, so your full £325,000 nil-rate band is available. The taxable excess is £100,000.
- If the trustees pay: 20% of £100,000 = £20,000.
- If you pay: the excess is grossed up (£100,000 × 25%) = £25,000.
Same gift, £5,000 difference in tax.
Paying it yourself costs more now, but moves the extra £25,000 out of your estate too.
Chargeable lifetime transfer vs potentially exempt transfer
A chargeable lifetime transfer (a gift into a discretionary trust) is taxed at 20% immediately if it clears your nil-rate band. A potentially exempt transfer, or PET (an outright gift to a person), is tax free at the time and becomes fully exempt if you live seven years. The trade-off is control: a trust keeps assets managed, an outright gift hands them over.
| Chargeable lifetime transfer (CLT) | Potentially exempt transfer (PET) | |
|---|---|---|
| Typical gift | Into a discretionary trust | Outright, to a person |
| Tax at the time | 20% above the nil-rate band | None |
| If you survive 7 years | No further tax; the 20% already paid stands | Becomes fully exempt |
| If you die within 7 years | Recalculated at up to 40%, with credit for tax paid | Becomes chargeable, using the nil-rate band |
| Reporting | IHT100 to HMRC | Recorded by executors after death |
See how much money you can gift tax free for the yearly exemptions, and using trusts in estate planning for trusts.
What happens if you die within seven years of a CLT?
If you die within seven years of a CLT, it is recalculated at the death rate (up to 40%), with credit for the 20% lifetime tax already paid. Taper relief can cut the extra tax where you survived at least three years, but it reduces the tax, not the gift, and never refunds lifetime tax.
The CLT is set against the nil-rate band available at death, and the death rate applies to any excess, less the lifetime tax already paid. If that earlier 20% was the larger figure, there is nothing more to pay, but HMRC does not repay the difference.
One trap most guides miss is the 14-year rule. When a PET fails because you died within seven years, HMRC looks back a further seven years from that gift to pick up any CLT, so a chargeable transfer up to 14 years before death can still reduce the nil-rate band and push tax onto the later gift. Taper relief runs on the same scale used for gifts:
| Years between the CLT and death | Taper: tax charged on the excess |
|---|---|
| Less than 3 years | 40% (no taper) |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 years or more | Nil; the lifetime 20% is final |
Source: gov.uk, as at August 2026, subject to change.
How do you report a CLT to HMRC?
A chargeable lifetime transfer is reported to HMRC on form IHT100, not through your usual tax return. Trustees or the person making the gift report it and pay any tax due within set deadlines, once it passes the reporting thresholds, even where the transfer sits inside the nil-rate band.
- Value the transfer. Establish the loss to your estate, the amount leaving you, including the tax if you are paying it yourself.
- Check prior CLTs. Add up chargeable transfers in the previous seven years to see how much nil-rate band remains.
- Complete form IHT100. Report the transfer to HMRC, generally within 12 months of the end of the month in which you made it.
- Pay any lifetime tax. Tax is due by 30 April after the tax year for gifts between 6 April and 30 September, or six months after the month of transfer otherwise.
Source: gov.uk / HMRC, as at August 2026, subject to change. See our estate planning overview for how trusts fit a wider plan.
Frequently asked questions
Is a chargeable lifetime transfer taxed immediately?
Yes, if it exceeds your available nil-rate band. A CLT is charged to inheritance tax at 20% when you make it, on the amount above the band (£325,000, frozen until 5 April 2031). A transfer inside the band carries no immediate tax but still uses the band for seven years (gov.uk, subject to change).
What is the difference between a CLT and a PET?
A CLT is a gift into a discretionary trust, taxed at 20% straight away if it clears your nil-rate band. A PET is an outright gift to a person, tax free at the time and fully exempt if you survive seven years. A CLT is chargeable from the outset; a PET only if you die within seven years.
What is the 14-year rule on chargeable lifetime transfers?
When a gift to a person (a PET) fails because you died within seven years, HMRC looks back a further seven years to include any earlier CLT. So a chargeable lifetime transfer made up to 14 years before death can reduce the nil-rate band and add tax to the later gift (gov.uk, subject to change).
Who pays the tax on a chargeable lifetime transfer?
Either the trustees or the person making the gift can pay. If the trustees pay, the rate on the excess is 20%. If you pay it yourself, the tax is grossed up as a further transfer, so the effective rate on the excess is 25%, though more value then leaves your estate.
Do you report a CLT even if no tax is due?
Often yes. A CLT is reported on form IHT100, usually within 12 months of the end of the month of transfer, once it passes HMRC's reporting thresholds, even where it sits inside the nil-rate band and no tax is payable. Dated records of each transfer make later calculations easier.