The 7-Year Rule on Gifts: A Plain Guide to IHT in 2026
How the 7-year rule works for inheritance tax in 2026/27, including taper relief, the GBP 325,000 nil-rate band, exemptions and how to plan gifts safely.
Quick answer
The 7-year rule means most gifts you make are free from inheritance tax (IHT) if you live for seven years afterwards. Die within seven years and the gift is added back to your estate, using up your GBP 325,000 nil-rate band first. Tax of up to 40% applies only to amounts above the band, reduced by taper relief for gifts made more than three years before death.
What the 7-year rule actually does
When you give away money or assets during your lifetime, most gifts are treated as a "potentially exempt transfer", or PET. The word "potentially" is the key. The gift is only exempt if you go on to live for seven years. If you die before that, the gift stops being exempt and is dragged back into the calculation of your estate.
This catches a lot of people out. They assume that once money has left their bank account it is gone for IHT purposes. It is not - HMRC looks back over the seven years before death and adds those gifts in. The point of the rule is to stop people from giving everything away on their deathbed purely to avoid the 40% charge.
How gifts interact with your nil-rate band
For 2026/27, the nil-rate band (NRB) is GBP 325,000. There is also a residence nil-rate band (RNRB) of GBP 175,000 where you leave a qualifying home to direct descendants such as children or grandchildren. Both bands can pass to a surviving spouse or civil partner, so a couple can potentially shelter up to GBP 1 million.
When you die, any gifts made in the previous seven years are set against your nil-rate band before the rest of your estate. They are counted in the order you made them, oldest first. This matters because gifts use up the band that would otherwise protect what you leave in your will.
| Element | 2026/27 figure |
|---|---|
| Nil-rate band (NRB) | GBP 325,000 |
| Residence nil-rate band (RNRB) | GBP 175,000 |
| Standard IHT rate above bands | 40% |
| Reduced rate (10%+ to charity) | 36% |
If the total of your gifts in the seven-year window stays below GBP 325,000, there is no tax on the gifts themselves - but they still reduce the band left for the rest of your estate, which can increase the bill on what passes through your will.
Taper relief, explained without the myth
Taper relief is the most misunderstood part of the whole system. People hear that gifts "taper away" after three years and assume the value of the gift shrinks. That is wrong.
Taper relief reduces the tax due on a gift, not the value of the gift. Crucially, it only bites once the gift exceeds the available nil-rate band. If all your gifts fit within the GBP 325,000 band, there is no tax to taper in the first place, so taper relief gives you nothing.
The relief increases the longer you survive after making the gift:
| Years between gift and death | Taper relief on the tax |
|---|---|
| 0 to 3 years | No relief (full rate applies) |
| 3 to 4 years | 20% reduction |
| 4 to 5 years | 40% reduction |
| 5 to 6 years | 60% reduction |
| 6 to 7 years | 80% reduction |
| 7 years or more | Gift fully exempt |
So a large gift made four years before death, sitting above the nil-rate band, would have its tax cut by 40%. A gift that fits inside the band gets no benefit from taper because there was no tax to reduce.
Gifts that sit outside the 7-year rule
Not every gift is a PET. Several exemptions let you give money away with immediate effect, no seven-year wait required. Used consistently, these can move meaningful sums out of your estate every year.
The annual exemption
You can give away GBP 3,000 each tax year free of IHT. If you did not use last year's allowance, you can carry it forward for one year only, giving a maximum of GBP 6,000. A couple who both did this could pass GBP 12,000 in a single year.
Small gifts
You can make unlimited gifts of up to GBP 250 per person each tax year, provided that person has not already received part of your annual exemption. This is handy for spreading smaller amounts across many family members.
Wedding and civil partnership gifts
You can give a tax-free wedding gift of up to GBP 5,000 to a child, GBP 2,500 to a grandchild or great-grandchild, and GBP 1,000 to anyone else. The gift must be made before the wedding and the marriage must go ahead.
Regular gifts from surplus income
This exemption is powerful but underused. If you make regular gifts out of your income - not your capital - and they do not reduce your normal standard of living, they are immediately exempt with no upper limit. The catch is record-keeping: you must show a clear pattern and that the money genuinely came from surplus income. Keep a record of your income and outgoings to prove it.
A worked example
Imagine Margaret, a widow, who has inherited her late husband's unused nil-rate band, giving her GBP 650,000 of combined NRB plus residence allowances on top. In 2026 she gives GBP 400,000 to her son to help him buy a house, then dies five years later.
The GBP 400,000 gift is a PET. Because she died within seven years, it is brought back in. The first GBP 325,000 (her own NRB, simplified here) covers most of it, leaving GBP 75,000 above the band. Tax at 40% on that GBP 75,000 would be GBP 30,000, but because she survived five years, taper relief of 60% applies, cutting the tax to GBP 12,000. The gift also reduces the band available for the rest of her estate.
This is a simplified illustration. Real cases involve the order of gifts, transferred bands and the residence nil-rate band interacting in detail. To sketch out your own position, try the calculator below.
Inheritance Tax Calculator
Estimate Inheritance Tax liability on an estate with our UK IHT calculator.
Open Inheritance Tax calculatorThe gift with reservation trap
One rule defeats a lot of well-meaning plans: the gift with reservation of benefit. If you give something away but keep enjoying it, HMRC treats it as still yours. The classic example is giving your house to your children while continuing to live in it rent-free. The seven-year clock simply does not start, because in HMRC's eyes you never really gave it away.
To make a valid gift of your home you would generally have to move out, or pay full market rent to the new owners. This is a complex, high-value area, and getting it wrong can be costly. Professional advice is strongly recommended before gifting any property you intend to keep using.
How to plan gifts sensibly
There is no single right answer - it depends on your wealth, your health and your family. A few principles hold for most people:
- Use the annual and small-gift exemptions every year. They are modest individually but add up over a decade.
- Consider regular gifts from surplus income if you have more coming in than you spend, and document everything.
- Make larger PETs early, while you have the best chance of surviving the seven years.
- Keep dated records of every gift, the recipient, the amount and the exemption claimed.
- Do not strip yourself of assets you may need - running out of money is a worse outcome than paying some IHT.
Annual exemption: immediate, certain, but capped at GBP 3,000 (or GBP 6,000 with carry-forward). Large PET: no upper limit and potentially huge savings, but you must survive seven years for full relief.
Getting the numbers right
Inheritance tax is YMYL territory - getting it wrong has real financial consequences for your family. The figures here are for the 2026/27 tax year: a GBP 325,000 nil-rate band, GBP 175,000 residence nil-rate band, a 40% standard rate and 36% where you leave at least 10% of your net estate to charity. Other thresholds and reliefs change over time and depend heavily on your circumstances.
Use the
Inheritance Tax Calculator
Estimate Inheritance Tax liability on an estate with our UK IHT calculator.
Open Inheritance Tax calculatorFrequently asked questions
What is the 7-year rule for inheritance tax?
The 7-year rule means that most gifts you make are free from inheritance tax if you live for seven years after making them. These are called potentially exempt transfers. If you die within seven years, the gift is added back into your estate for IHT purposes. Gifts made between three and seven years before death may benefit from taper relief, which reduces the tax due on the gift itself rather than on the whole estate.
How much can I give away tax-free each year?
You have an annual exemption of GBP 3,000 each tax year, which you can give away without it counting towards your estate. You can carry forward one unused year, so a couple who gave nothing last year could pass GBP 12,000 between them. On top of this you can make unlimited small gifts of up to GBP 250 per person, plus wedding gifts and regular gifts from surplus income. These are separate from the 7-year rule.
What is taper relief and when does it apply?
Taper relief reduces the inheritance tax payable on a gift if you die between three and seven years after making it. A common misunderstanding is that taper relief reduces the value of the gift. It does not. It reduces the tax due, and only applies once the gift exceeds the available nil-rate band. The relief rises in steps from year three to year seven, when the gift becomes fully exempt.
Does the 7-year rule apply to gifts to a spouse?
No. Gifts between spouses and civil partners who are both UK domiciled are exempt from inheritance tax entirely, whether made during life or on death. The 7-year clock is irrelevant for these transfers. This spousal exemption is one of the most powerful planning tools because it allows assets and unused allowances to pass freely between partners, with the survivor potentially inheriting a doubled nil-rate band.
What happens to a gift if I die within 7 years?
The gift is brought back into your estate and counts against your nil-rate band first. If the total of gifts in the seven years before death is below the GBP 325,000 nil-rate band, no tax is due on the gifts, though they reduce the band available for the rest of your estate. If gifts exceed the band, tax of up to 40% applies to the excess, reduced by taper relief where the gift was made more than three years before death.
What is the nil-rate band in 2026/27?
The nil-rate band is GBP 325,000 for the 2026/27 tax year. There is also a residence nil-rate band of GBP 175,000 where you leave a qualifying home to direct descendants such as children or grandchildren. Both bands can be transferred between spouses and civil partners, so a surviving partner could have up to GBP 1 million of combined allowance. The standard inheritance tax rate above these bands is 40%.
Are gifts to charity affected by the 7-year rule?
Gifts to UK registered charities are exempt from inheritance tax whether made during your lifetime or in your will, so the 7-year rule does not apply to them. There is an added benefit on death: if you leave at least 10% of your net estate to charity, the inheritance tax rate on the rest of your taxable estate falls from 40% to 36%. Charitable giving can therefore reduce the overall bill significantly.
Do I need to keep records of gifts I make?
Yes. Good records are essential because your executors will need to report gifts made in the seven years before death to HMRC. Keep a dated note of each gift, who received it, the amount or asset, and which exemption you are relying on. For regular gifts from income, keep evidence of your income and outgoings to show the gifts came from surplus and did not reduce your standard of living.
Can I give away my house and keep living in it?
You can, but it usually fails for inheritance tax because of the gift with reservation of benefit rules. If you give away an asset but continue to enjoy it, such as living in a house rent-free, HMRC treats it as still part of your estate. To make a valid gift of your home you would generally need to move out or pay a full market rent. This is a complex area where professional advice is strongly recommended.
How can I estimate my potential inheritance tax bill?
Start by adding up the value of everything you own, including property, savings, investments and possessions, then subtract debts and your available nil-rate bands. Apply 40% to anything above the bands. Our inheritance tax calculator walks through the nil-rate band and residence nil-rate band so you can see an estimate quickly. For estates near the threshold or with significant lifetime gifts, professional advice will give a more precise figure.
Try the calculators
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