Under the UK’s 7-year rule for inheritance tax, a gift you make during your lifetime becomes completely free of IHT if you live for at least seven years after making it. Die sooner and the gift is pulled back into your estate and can be taxed at up to 40%, though a sliding scale of relief softens the bill if you survived more than three years. The rule exists to stop people avoiding IHT by giving everything away shortly before death.1GOV.UK. Inheritance Tax – Rules on Giving Gifts
When the Seven-Year Clock Starts
The clock starts the day you make the gift. If you’re still alive seven years later, the gift drops out of your estate for IHT purposes no matter how large it was. If you die inside those seven years, HMRC treats the gift as part of your estate and calculates tax on it.1GOV.UK. Inheritance Tax – Rules on Giving Gifts
Outright gifts from one person to another are what HMRC calls Potentially Exempt Transfers, or PETs. “Potentially” because their status stays open until either seven years pass (exempt) or the donor dies (chargeable). Most everyday gifts between people fall into this category.
One thing has to be true for the clock to run: you must actually part with the asset. Give your house to your children but carry on living there rent-free and HMRC treats it as a “gift with reservation of benefit.” The property stays in your estate however many years go by. The transfer has to be genuine and unconditional.
How Much Tax Is Charged If You Die Within Seven Years
This is where tapering relief comes in. Relief doesn’t reduce the value of the gift; it reduces the rate of tax applied to it. It only helps once your total gifts in the seven years before death exceed the £325,000 nil-rate band, and it only bites after you’ve survived at least three years.1GOV.UK. Inheritance Tax – Rules on Giving Gifts
The rates set out in section 7 of the Inheritance Tax Act 1984 are:2Legislation.gov.uk. Inheritance Tax Act 1984 – Section 7 Rates
- Less than 3 years before death: 40%
- 3 to 4 years: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
- 7 years or more: 0%
A common misreading is that tapering relief covers every gift made in the seven-year window. It doesn’t. Gifts totalling less than £325,000 during that period are already absorbed by the nil-rate band, and no tax is due in the first place. Tapering only affects the portion above that threshold.
How the Nil-Rate Band Fits In
The nil-rate band of £325,000 has been frozen since 2009 and is now set to stay at that figure through the 2030–31 tax year.3GOV.UK. Inheritance Tax Nil-Rate Band and Residence Nil-Rate Band Thresholds From 6 April 2026 to 5 April 2028 When gifts are added back to an estate on death, they use up the nil-rate band first, in the order they were made. Any amount above £325,000 is what gets taxed, and it’s that excess that tapering relief can reduce once you’ve survived three years.
A separate residence nil-rate band of £175,000 applies when you leave your home to direct descendants, and it’s also frozen through 2030–31. Combined, a single person can shield up to £500,000; married couples and civil partners can reach £1 million by transferring unused allowances. The residence nil-rate band tapers away for estates above £2 million, disappearing entirely by £2.35 million.4GOV.UK. Inheritance Tax Thresholds
Gifts That Don’t Start the Clock at All
Several categories of gift are exempt straight away, so they never enter the seven-year calculation. Using them consistently is the simplest form of IHT planning.
- Annual exemption of £3,000 per tax year. Unused allowance carries forward for one year only, so a person who skipped the previous year can give £6,000.
- Small gifts of up to £250 per person per tax year, to as many different people as you like. You can’t combine this with the annual exemption for the same recipient.
- Gifts between UK-domiciled spouses or civil partners, with no upper limit. If the receiving spouse is not UK-domiciled (or, from April 2025, not a long-term UK resident), the exemption is capped at £325,000.5GOV.UK. IHTM11033 – Spouse or Civil Partner Exemption
- Normal expenditure out of income. Regular gifts made from surplus income are exempt with no upper limit, provided they form a pattern, come from income rather than capital, and leave you enough to maintain your usual standard of living.6GOV.UK. IHTM14231 – Lifetime Transfers: Normal Expenditure Out of Income: Introduction
- Wedding or civil partnership gifts: up to £5,000 from a parent, £2,500 from a grandparent, and £1,000 from anyone else.
Because these gifts are exempt from the moment they’re made, they don’t count toward the £325,000 nil-rate band and don’t sit inside the seven-year window.
Who Actually Pays the Tax
The default is that the estate pays IHT on gifts caught by the seven-year rule. But if the donor gave away more than £325,000 in the seven years before death, the recipients of those gifts become personally liable for the tax on their gift.1GOV.UK. Inheritance Tax – Rules on Giving Gifts
That catches people out. If you receive a large gift and the donor dies within seven years, you can face a bill you weren’t expecting. The rate depends on how long the donor survived after making the gift, so a recipient who has already spent or reinvested the money is exposed, especially in the first three years when the full 40% applies with no tapering.
Keeping Records and Making the Rule Work
Keep clear records of every gift you make: the date, the value, and who received it. Executors need this information to work out IHT correctly, and undocumented gifts cause delays and can trigger penalties. The normal expenditure out of income exemption is especially record-heavy, because you have to be able to show a pattern of giving from surplus income over time.
Starting early is what makes the arithmetic work. A couple who each use the £3,000 annual exemption every year shift £6,000 out of the estate annually with no IHT exposure at all. Larger one-off gifts start the seven-year clock, and the sooner they’re made, the better the chance of the clock running out. Nobody plans to die inside seven years, but the tapering scale means meaningful protection starts building from the three-year mark.