Answers · UK 2025/26
How does the 7-year rule on inheritance tax gifts work?
Gifts made more than 7 years before death are completely IHT-free. Gifts within 7 years use up your £325,000 Nil-Rate Band first; if they exceed it, IHT applies on the excess with taper relief reducing the rate after 3 years (20% reduction per additional year).
Full answer
UK 7-year rule for Inheritance Tax 2025/26. Potentially Exempt Transfer (PET): most lifetime gifts to individuals or bare trusts. If you live 7+ years after the gift, it's completely outside your estate for IHT. If you die within 7 years, the gift "comes back" and uses up your £325,000 Nil-Rate Band first. Gifts ABOVE the NRB: subject to IHT at 40%, but with taper relief based on years between gift and death. Taper schedule: 0-3 years before death = 100% IHT (40%); 3-4 years = 80% (32%); 4-5 years = 60% (24%); 5-6 years = 40% (16%); 6-7 years = 20% (8%); 7+ years = 0% IHT. Important: taper applies ONLY to gifts ABOVE the NRB, not to gifts within it. So a £400,000 gift 5 years before death: £325k uses NRB at 0%, £75k taxed at 24% = £18,000 IHT (vs £30,000 if no taper). Always tax-free (no 7-year rule): annual £3,000 exemption (carry forward 1 year), £250 small gifts (per recipient, unlimited recipients), wedding gifts (£5k child, £2.5k grandchild, £1k other), normal expenditure from income, gifts to spouse/civil partner/charity. The donor cannot keep using the asset — "gifts with reservation" stay in the estate.
Try the calculator
Related guides
More answers
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.