When is the UK Gift/Inheritance tax levied?

Question

This page sets out the rules for UK "gift tax" (a subset of inheritance tax)

UK Gift tax is specifically designed to prevent people circumventing inheritance tax by giving gifts to their heirs just before they die. One of the conditions is that the tax rate depends on when you die:

No tax is due on any gifts you give if you live for 7 years after giving them.

Gifts given in the 3 years before your death are taxed at 40%.

Gifts given 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

Given that nobody schedules their own death (or at least not many) when is this tax levied? Do you pay it when the gift is given and apply for a refund if you live longer than 7 years? Or do you pay it out of your estate if you die early?

Answer 1

Further down on the same page you link in the question.

Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift.

The £325,000 cut off is because that's the limit of what you can give away that could be tax free. So if you give away more than that the government already knows you'll pay tax on it so it collects it right now rather than waiting for your death.

There's also a worked example on that page showing how the tax is paid on the death of the giver and confirming that the recipient of the gift is liable to pay the tax. Obviously they can't pay it before the giver dies because they wouldn't know how much to pay.