Chargeable Lifetime Transfers (CLTs): UK Inheritance Tax Guide 2026/27

The Inheritance Tax Act 1984 (IHTA 1984) establishes the framework for taxing lifetime gifting. Section 2(1) of the IHTA 1984 defines a chargeable transfer as any transfer of value made by an individual that does not qualify as an exempt transfer.  A Chargeable Lifetime Transfer (CLT) is an immediately chargeable transfer that fails to qualify as a Potentially Exempt Transfer (PET).

“A chargeable transfer is a transfer of value which is made by an individual but is not (by virtue of Part II of this Act or any other enactment) an exempt transfer.”

Practitioners most commonly encounter CLTs when a client transfers assets into a relevant property trust (such as a discretionary trust) or transfers value to a company.

Lifetime Tax Rates and Grossing-Up

When a client makes a CLT, the legislation immediately subjects the transfer to Inheritance Tax (IHT). Section 7(2) of the IHTA 1984 specifies that the tax charged on a lifetime transfer operates at exactly one-half of the standard death rate.  Assuming the standard 40% death rate applies, the effective lifetime rate for a CLT is 20%.

Calculating the precise value of the transfer requires you to determine who bears the tax liability. Section 5(4) of the IHTA 1984 dictates the valuation of the transferor’s estate immediately after the transfer.

• Transferor pays the tax: If the transferor pays the IHT, the loss to their estate includes both the gift itself and the tax paid.  Consequently, you must “gross up” the net gift to the transferee to determine the true value transferred.  This effectively represents a 25% charge on the net gift (calculated as 20/80).
• Transferee pays the tax: If the transferee pays the tax, the value transferred does not include the tax component.  You do not need to gross up the transfer in this scenario.

Cumulation and the 7-Year Rule

To calculate the tax due on a new CLT, you must cumulate the values of all other immediately chargeable transfers the client made in the preceding seven years.

When determining this “lifetime cumulative total”, you strictly exclude any PETs made during the same seven-year window.  The cumulative total of prior CLTs consumes the available nil-rate band before you apply the 20% rate to any excess value.

If the transferor survives for seven years following the CLT, no further tax becomes payable on that specific transfer.  However, if the transferor dies within seven years of making the CLT, section 7(4) of the IHTA 1984 imposes an additional death charge.  The legislation requires you to recalculate the tax using the full death rates, deducting the lifetime tax already paid.

If the death occurs between three and seven years after the CLT, taper relief reduces the additional tax payable on the transfer.

Table: Taper Relief on Failed CLTs (IHTA 1984, s 7(4))

2026/27 Thresholds and Legislative Updates

When advising clients in the 2026/27 tax year, practitioners must apply the frozen threshold limits. The government has frozen the nil-rate band (NRB) at £325,000 until April 2028.  Because CLTs immediately consume the NRB, tracking a client’s cumulative lifetime transfers remains vital to prevent unexpected 20% upfront tax charges.

Furthermore, you must account for the structural changes to domicile introduced by the Finance Act 2025. For transfers made on or after 6 April 2025, the IHT system replaces the traditional domicile concept with a “long-term UK resident” test.  A person qualifies as a long-term UK resident if they meet the statutory residence conditions, directly impacting whether their worldwide assets (and subsequent lifetime transfers of those assets) fall within the scope of UK CLTs.

Next steps for research: Review the interaction between CLTs and the new April 2026 caps on Agricultural Property Relief (APR) and Business Property Relief (BPR) to determine how excess values exceeding the £1m/£2.5m limits affect the immediate 20% lifetime charge. Additionally, analyse the specific grossing-up mechanics when a CLT falls partially within and partially outside the available nil-rate band.