What is the inheritance tax rate if a donor dies between 3 to 4 years after gifting?

When considering inheritance tax in relation to gifts made by a donor, the period between the gift and the donor's death is crucial. If a gift is made and the donor passes away within a specified timeframe thereafter, the value of that gift may be included in the donor's estate for inheritance tax purposes.

In the context of gifts made between three to four years before the donor's death, the relevant tax rate that applies is 80%. This reflects provisions under inheritance tax rules that scale the relief applied to gifts based on the time elapsed since the gift was made. The closer to the time of death the gift is made, the higher the percentage that is subject to inheritance tax. By the end of the fourth year, the full exemption applies, while gifts made within the three to four-year window trigger an 80% retention of their value for tax assessment.

This means that, in planning for inheritance tax, timing of gifts is a critical factor, and being aware of the associated tax liabilities can significantly affect the financial outcomes for beneficiaries.