The IHT 7-Year Gifting Rule 2026/27: Taper Relief Worked Example
How the seven-year rule and taper relief work for Inheritance Tax gifts, why taper relief doesn't reduce the gift below the nil-rate band as often assumed, with a full worked example.
The taper relief schedule
| Years before death | % of full 40% rate charged | Effective rate |
|---|---|---|
| 0–3 years | 100% | 40% |
| 3–4 years | 80% | 32% |
| 4–5 years | 60% | 24% |
| 5–6 years | 40% | 16% |
| 6–7 years | 20% | 8% |
| 7+ years | 0% | 0% |
Inheritance Tax Calculator
Estimate Inheritance Tax liability on an estate with our UK IHT calculator.
Open Inheritance Tax calculatorWorked example: £425,000 gift, death at 5.5 years
Assume the nil-rate band (£325,000) has already been used up by earlier gifts or estate assets, and no residence nil-rate band applies to this specific gift.
| Step | Figure |
|---|---|
| Gift value | £425,000 |
| Less: available nil-rate band | £325,000 |
| Amount subject to tax | £100,000 |
| Full IHT rate | 40% |
| Taper relief band (5–6 years) | 40% of full rate = 16% |
| Inheritance Tax due | £16,000 |
Without taper relief, the tax on the £100,000 excess would have been £40,000 — surviving into the 5–6 year band cuts the bill by £24,000, illustrating why taper relief, while it doesn't eliminate tax on gifts above the nil-rate band, can still meaningfully reduce it.
The most common misunderstanding
A frequent mistake is assuming taper relief reduces the value of the gift being taxed, or applies to the whole gift regardless of the nil-rate band. In reality, taper relief only ever reduces the rate applied, and only to the portion of a gift that exceeds the available nil-rate band — a gift fully covered by the nil-rate band pays no Inheritance Tax at all, with or without taper relief, simply because there's no excess for the taper percentages to apply to.
Why gift order and chronology matter
Because the nil-rate band is applied to gifts in the order they were made, the first gifts within the seven years before death use up the nil-rate band first, potentially leaving later, larger gifts more exposed to full taxation — a subtlety that can catch families out when multiple gifts have been made to different people over several years before a death.
Sources
- gov.uk: Inheritance Tax on gifts
- HMRC Inheritance Tax Manual: taper relief
Frequently asked questions
What is the 7-year rule for Inheritance Tax gifts?
Gifts made by an individual more than seven years before their death are generally completely outside their estate for Inheritance Tax purposes. Gifts made within seven years of death are called 'potentially exempt transfers' (PETs) and can become chargeable if the person dies within that seven-year window, though taper relief can reduce the tax due depending on how long before death the gift was made.
What is taper relief and how does it work?
Taper relief reduces the rate of Inheritance Tax charged on a gift the longer the donor survives after making it, within the seven-year window — but it only applies to gifts that exceed the available nil-rate band, and it reduces the tax rate on the excess, not the value of the gift itself.
What are the exact taper relief percentages?
Years between gift and death, and the percentage of the full 40% IHT rate charged: 0–3 years = 100% (full 40%); 3–4 years = 80% (32%); 4–5 years = 60% (24%); 5–6 years = 40% (16%); 6–7 years = 20% (8%); 7+ years = 0% (nil).
Does taper relief apply to the whole gift or only the amount above the nil-rate band?
This is the most commonly misunderstood part of the rule: taper relief only applies to the portion of a gift's value that exceeds the available nil-rate band at the time of death. If the gift is fully covered by the nil-rate band, no tax is due regardless of taper relief, and if it's only partly covered, taper relief reduces the rate on the uncovered excess only.
Who pays the Inheritance Tax if a gift becomes chargeable?
Generally, the recipient of the gift is primarily liable for any Inheritance Tax due on a failed potentially exempt transfer, though if they can't or don't pay, the liability can fall back on the deceased's estate — this is a key reason recipients of substantial gifts should understand the seven-year rule, not just the person making the gift.
Does the order of gifts matter for calculating Inheritance Tax?
Yes — gifts are generally set against the available nil-rate band in chronological order, with the earliest gifts using up the nil-rate band first. This means a later, larger gift can end up more exposed to tax than an earlier one, even if the later gift was made further from death, simply because of the order in which the nil-rate band is allocated.
What is the annual £3,000 gift exemption and how does it interact with the 7-year rule?
Gifts within the £3,000 annual exemption (and certain other specific exemptions, like small gifts of £250 or wedding gifts) fall outside the estate immediately, without needing to survive seven years at all — the seven-year rule and taper relief only apply to gifts above these specific immediately-exempt allowances.
Can gifts with reservation of benefit use the 7-year rule?
No — if a gift is made but the donor continues to benefit from it (for example, gifting a house but continuing to live in it rent-free), it's generally treated as a 'gift with reservation of benefit' and remains part of the donor's estate for Inheritance Tax purposes regardless of how many years pass, unless a market rent is paid or the reservation genuinely ends.
How does someone prove a gift was made on a specific date, years before death?
Keeping clear records — bank statements showing the transfer, any accompanying letter or gift declaration, and valuations for non-cash gifts — at the time the gift is made is important, since executors may need to evidence the date and value of gifts made years earlier when completing Inheritance Tax paperwork after a death.
What is a worked example of taper relief reducing an Inheritance Tax bill?
A parent gifts £425,000 to their child and dies 5.5 years later, with no nil-rate band available (already used by earlier gifts or the estate). The gift exceeds the £325,000 nil-rate band by £100,000. At 5.5 years, taper relief applies the 5–6 year band: 40% of the full 40% rate = 16%. Tax due: £100,000 × 16% = £16,000, instead of the £40,000 that would be due without taper relief.
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Related reading
Gifting Money in the UK 2026 — Tax Rules, Limits and the 7-Year Rule
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