What is a chargeable lifetime transfer for inheritance tax?
Answered 11 March 2026
Chargeable Lifetime Transfer for Inheritance Tax
What the law says
A chargeable transfer is defined in IHTA 1984, s.2(1) as "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."
A transfer of value is defined in IHTA 1984, s.3(1) as "a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer."
The key distinction for lifetime transfers is the concept of the potentially exempt transfer (PET), defined in IHTA 1984, s.3A(1A). A PET is a transfer of value made by an individual on or after 22 March 2006 which would otherwise be a chargeable transfer, but only to the extent it constitutes: (i) a gift to another individual, (ii) a gift into a disabled trust, or (iii) a gift into a bereaved minor's trust on the coming to an end of an immediate post-death interest.
Critically, under s.3A(4): "A potentially exempt transfer which is made seven years or more before the death of the transferor is an exempt transfer and any other potentially exempt transfer is a chargeable transfer."
This means a chargeable lifetime transfer (CLT) is any lifetime transfer of value that is:
- Not a PET (i.e. it does not fall within the categories in s.3A), and
- Not an exempt transfer under Part II of IHTA 1984.
HMRC guidance / practice
HMRC's Inheritance Tax Manual explains that most lifetime transfers are PETs, but a lifetime transfer will be a chargeable lifetime transfer (immediately chargeable transfer) where it does not qualify as a PET. The two primary examples are:
- A transfer into a relevant property trust (e.g. a discretionary trust), because the gift is not to an individual or one of the specified trusts; and
- A transfer to a company.
HMRC further identifies four other transfers specifically prevented from being PETs, including transfers by a close company (IHTA 1984, s.94(1)), deemed dispositions on alterations of capital/share rights in close companies (s.98(3)), the release of a life interest between 18 March 1986 and 16 March 1987, and transfers of woodlands subject to an outstanding Estate Duty charge.
The HMRC manual summarises the position as follows: "Any lifetime transfer that does not qualify as a potentially exempt transfer (PET) will be immediately chargeable to Inheritance Tax under IHTA84/S3(1)."
Tax rate: An immediately chargeable lifetime transfer is taxed at 20% (half the death rate of 40%) to the extent it exceeds the nil-rate band after cumulation with previous chargeable transfers in the preceding seven years.
Liability: The transferor is liable for tax on an immediately chargeable transfer (as opposed to PETs, where the transferee bears the liability).
Death within seven years: If the transferor dies within seven years of making the CLT, an additional charge may arise to bring the total tax up to the full 40% death rate, with taper relief potentially available.
Summary
| Feature | Chargeable Lifetime Transfer (CLT) |
|---|---|
| Statutory basis | IHTA 1984, ss.2(1), 3(1), 3A |
| Common examples | Gift into discretionary/relevant property trust; gift to a company |
| Tax rate at time of transfer | 20% (on excess over nil-rate band) |
| Who pays | The transferor |
| On death within 7 years | Additional charge up to 40% (taper relief may apply) |
Citation sources
PART I GENERAL Main charges and definitions Transfers of value. 3 1 Subject to the following provisions of this Part of this Act, a transfer of value is a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition; and the amount by which it is less is the value transferred by the transfer. 2 For the purposes of subsection (1) above no account shall be taken of the value of excluded
You calculate tax on the death estate by cumulating the values transferred by chargeable transfers in the seven preceding years. Chargeable transfers that cumulate with the death estate include both immediately chargeable transfers (IHTM14531), and failed potentially exempt transfers (PETs) (IHTM14511). Example Trevor makes the following transfers (after exemptions and reliefs): £50,000 to his son, Ryland, in January 2002 £75,000 to a discretionary trust in June 2006 £50,000 to his daughter, Sio
PART I GENERAL Main charges and definitions Chargeable transfers and exempt transfers. 2 1 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. 2 A transfer of value made by an individual and exempt only to a limited extent— a is, if all the value transferred by it is within the limit, an exempt transfer, and b is, if that value is partly within and partly outside the limit, a chargeab
extent that, by virtue of the transfer, the estate of that other individual is increased, . . . 3 Subject to subsection (6) below, a transfer of value falls within subsection (1)(c) above, as a gift into an accumulation and maintenance trust or a disabled trust, to the extent that the value transferred is attributable to property which, by virtue of the transfer, becomes settled property to which section 71 or 89 of this Act applies. 3A Subject to subsection (6) below, a transfer of value falls
At a lifetime case, COMPASS will allow you to prepare calculations in respect of transfers after 18 March 1986 which are immediately chargeable transfers (IHTM04067) (taxable at half death rate (IHTM14534)). But, where you need to make an calculation for such a transfer, you will need to create a new case record (IHTM31235) on COMPASS.
Set-up a new Entry for the transfer. If the type is a gift to a discretionary trust, or a gift to a company Select the relevant statistics type. If the type is a GWR (IHTM14301) where the reservation ceases during lifetime and the transfer is not a PET (IHTM04057), or another type of transfer chargeable when made classify it under 'Other Gifts Chargeable When Made'. Where you increase the value of the chargeable transfer for grossing (IHTM14593), include the addition as 'cash'. Include the PLCT
You can find full details about who is liable for Inheritance Tax on lifetime transfers separately at IHTM30011 onwards. In general terms, the transferor is liable for tax on an immediately chargeable transfer (IHTM14531), and the transferee is liable for tax on Potentially Exempt Transfers (PETs) (IHTM04057) or additional charges (IHTM14571).
Any lifetime transfer that does not qualify as a potentially exempt transfer (PET) (IHTM04057) will be immediately chargeable to Inheritance Tax under IHTA84/S3 (1). Two transfers that do not qualify are a transfer into a relevant property trust, because the gift is not to an individual or one of the specified trusts, see IHTM04058 and transfer to a company, see example 2 at IHTM04060 There may also be an alternative charge on the property transferred under the gift with reservation rules. (IHTM
PART I GENERAL Main charges and definitions Potentially exempt transfers. 3A 1 Any reference in this Act to a potentially exempt transfer is a reference to a transfer of value— a which is made by an individual on or after 18th March 1986 but before 22nd March 2006 ; and b which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer); and c to the extent that it constitutes either a gift to another individual or a