Taper Relief and IHT Explained: The 7-Year Gift Rule 2026/27

Quick answer

Taper relief reduces the rate of inheritance tax on a gift when you die between three and seven years after giving it. It does not cut the gift's value, and it only helps if your gifts exceed the GBP 325,000 nil-rate band. Survive seven full years and the gift normally escapes IHT entirely. The headline IHT rate stays at 40%.

What taper relief actually does

Taper relief is one of the most misunderstood parts of inheritance tax. People hear that gifts get "tapered" over seven years and assume the value of the gift shrinks each year. That is not how it works.

Taper relief reduces the rate of tax charged on a gift, not the amount of the gift counted in your estate. And crucially, it only comes into play once your total gifts within the seven-year window exceed your available nil-rate band, which is GBP 325,000 for the 2026/27 tax year.

So if you give away GBP 200,000 and die two years later, the full GBP 200,000 is added back to your estate, but because it sits below GBP 325,000, there is no tax on the gift itself to taper. Taper relief gives you nothing in that scenario.

The 7-year rule and potentially exempt transfers

Most outright gifts to individuals are "potentially exempt transfers", or PETs. The word "potentially" is the key. A PET becomes fully exempt from inheritance tax if you live for seven years after making it. Die within seven years and the gift is brought back into the IHT calculation.

The seven-year clock matters because it sets up the order in which your nil-rate band is used. Gifts are set against the nil-rate band in chronological order. Older gifts use up the band first, which affects how much, if any, of a later gift is taxable.

This ordering is why large estates often plan gifts carefully over many years rather than making one big transfer late in life.

How the taper scale works

When a gift is taxable -- meaning it falls above the nil-rate band and you die within seven years -- the rate of tax depends on how long you survived after making it. The standard rate is 40%, and taper relief reduces it on a sliding scale once you pass the three-year mark.

Remember that these reduced rates apply only to the portion of gifts above your nil-rate band. Everything within the band is taxed at 0% anyway, so taper relief never touches it.

A worked example

Suppose someone makes a single gift of GBP 500,000 and dies four and a half years later, with no other lifetime gifts in the seven years beforehand.

• The GBP 325,000 nil-rate band is set against the gift first, leaving GBP 175,000 taxable.
• Death occurred in the four-to-five-year band, so taper relief is 40%.
• The effective rate on the taxable GBP 175,000 is therefore 24% rather than 40%.
• Tax on the gift is roughly GBP 42,000, compared with GBP 70,000 with no taper relief.

The rest of the estate is then assessed separately, and because the nil-rate band was used up by the gift, it may not be available again for the remaining estate. The interaction between gifts and the band is exactly why a calculator helps.

The nil-rate bands in 2026/27

There are two allowances to keep in mind:

• The nil-rate band (NRB): GBP 325,000. This is the standard amount that passes free of IHT.
• The residence nil-rate band (RNRB): GBP 175,000. This can apply on top when a main residence is left to direct descendants such as children or grandchildren.

Married couples and civil partners can usually transfer any unused band to the survivor. That can lift a couple's combined nil-rate bands to as much as GBP 650,000, plus residence allowances on top, depending on circumstances. The transferable element is claimed by the executors of the second estate.

The RNRB has its own conditions and is reduced for very large estates above a taper threshold set by gov.uk. Because that taper threshold is not a figure we are pinning here, check the current value on gov.uk before relying on it for high-value estates.

Which gifts escape the seven-year rule entirely

Not every gift is a potentially exempt transfer. Several categories are immediately exempt and never enter the seven-year clock at all:

• Gifts between spouses and civil partners (where both are UK domiciled).
• The annual exemption -- a set amount you can give away each year.
• Small gifts to any number of different people.
• Normal gifts made out of surplus income, where they do not affect your standard of living.
• Certain wedding or civil partnership gifts.

The exact annual exemption and small-gift amounts are set by gov.uk and can change, so confirm the current figures there rather than assuming. Used well, the income-based exemption in particular can move significant sums out of an estate without any seven-year wait.

The 40% rate and the charity discount

The standard inheritance tax rate is 40%, charged on the value of the estate above the available nil-rate bands. Where 10% or more of the net estate is left to charity, the rate on the rest of the estate drops to 36%.

That 36% rate applies to the estate itself rather than to tapered gifts, but it is worth factoring in when planning, because leaving a meaningful charitable legacy can sometimes reduce the overall bill more than expected.

Who pays the tax on a failed gift

A point that surprises many families: the tax on a failed PET is primarily the responsibility of the person who received the gift, not the estate. If you give a relative GBP 400,000, die within three years, and the gift exceeds the nil-rate band, your relative could face a bill on the taxable portion.

If they cannot pay, the liability can fall back on the estate, which then has less to distribute to other beneficiaries. This is why donors often warn recipients about the seven-year risk and, in some cases, take out life cover written in trust to fund any potential tax.

How taper relief sits alongside other taxes

Inheritance tax does not exist in isolation. Lifetime gifts of assets such as property or shares can also trigger capital gains tax for the person making the gift, even though the IHT clock is only just starting. CGT is charged at 18% within the basic-rate band and 24% above it, with an annual exempt amount of GBP 3,000 in 2026/27.

That means a single gift can have both a CGT consequence now and a potential IHT consequence if you die within seven years. Modelling both is sensible before transferring valuable assets.

Practical steps before making large gifts

1. Work out your available nil-rate band first. Taper relief is irrelevant until gifts exceed GBP 325,000, so know your starting position.
2. Use the exemptions that never carry seven-year risk -- spouse transfers, the annual exemption, and gifts out of surplus income.
3. Keep clear records of every gift, its date, and its value. Executors will need these to calculate the position accurately.
4. Model the outcome with an inheritance tax calculator before committing to a large transfer, so you understand the worst case if you die within three years.
5. Take advice for complex estates, especially where trusts, business assets, or agricultural property are involved, as the rules there are detailed and beyond the scope of taper relief.

The bottom line

Taper relief is a genuine benefit, but a narrower one than its reputation suggests. It reduces the rate of inheritance tax on gifts you survive by three to seven years, and only on amounts above your nil-rate band. For most modest gifts that stay within GBP 325,000, the real protection comes from surviving seven years and from using the immediate exemptions, not from taper relief itself.

Start by estimating your position with the

calculator, confirm the current exemption figures and any high-estate taper threshold on gov.uk, and seek professional advice before making large or complex gifts. The seven-year clock rewards planning early.