Answers · UK 2025/26
What is the seven year rule for gifts and inheritance tax?
Most gifts you make are free of Inheritance Tax if you live for seven years after making them. If you die within seven years, the gift counts against your GBP 325,000 nil-rate band; any tax due on gifts above the band is reduced on a sliding scale called taper relief once you have survived at least three years.
Full answer
The seven-year rule governs how lifetime gifts are treated for Inheritance Tax (IHT). When you give assets away, most outright gifts to individuals are 'potentially exempt transfers' (PETs). If you survive seven years from the date of the gift, it falls completely outside your estate and is free of IHT. If you die within seven years, the gift is brought back into account. Who it affects: anyone making substantial lifetime gifts, and their beneficiaries and executors. It matters most where total gifts exceed the nil-rate band of GBP 325,000. How it works: gifts made in the seven years before death are set against the nil-rate band first, in date order. If gifts within that window exceed the available GBP 325,000 band, IHT can be due on the excess, charged at up to 40%. Taper relief then reduces the tax payable (not the gift's value) on that excess: there is no reduction for gifts in years 0-3, then the tax is tapered for gifts made 3-7 years before death, falling progressively to nil at seven years. Crucially, taper relief only helps once the cumulative gifts breach the nil-rate band - it reduces tax, not the value brought into the estate. Worked example: you give GBP 400,000 and die four years later, having made no other gifts. The first GBP 325,000 is covered by the nil-rate band, leaving GBP 75,000 taxable. The full 40% would be GBP 30,000, but because you survived between three and four years, taper relief reduces the tax due below that figure. 2026/27 detail: the nil-rate band remains GBP 325,000 and the residence nil-rate band up to GBP 175,000; the death rate is 40% (36% if 10%+ of the net estate goes to charity). The annual gift exemption and small-gift and wedding exemptions are separate and can remove some gifts from the seven-year clock entirely - check current gov.uk figures for these. Beware 'gifts with reservation of benefit' (for example, giving away your home but still living in it rent-free), which the rule does not let you escape. Use the inheritance tax calculator to model the impact and take advice for larger estates.
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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.