Inheritance Tax
Inheritance Tax and Gifts: The Seven Year Rule Explained
Under UK inheritance tax rules, gifts made more than 7 years before death are completely exempt from IHT. Gifts made within 7 years are potentially chargeable — added back to the estate and subject to IHT on a sliding scale. Understanding the seven year rule is fundamental to lifetime gifting strategy. At Legacy Lines, we help Kent families plan their estates to make the most of available exemptions.
In this guide
The seven year rule
When you make a gift of more than the available exempt amounts to an individual, that gift becomes a Potentially Exempt Transfer (PET). A PET is exempt from IHT — but only if you survive for 7 years after making it. If you die within 7 years, the gift is added back into your estate and taxed as part of it.
The 7-year rule is one of the most powerful tools in IHT planning. Families who start making systematic gifts early — and who survive 7 years — can significantly reduce the taxable estate over time. However, it requires careful planning and record-keeping to implement correctly.
Gifts that are always exempt from IHT
The following gifts are exempt regardless of the 7-year rule:
| Exemption | Amount / conditions |
|---|---|
| Annual exemption | £3,000 per person per tax year (carry forward 1 year if unused) |
| Small gifts exemption | Up to £250 to any number of individuals per tax year (cannot combine with annual exemption for same person) |
| Wedding / civil partnership gifts | £5,000 to child, £2,500 to grandchild, £1,000 to anyone else |
| Gifts out of income | Regular gifts from surplus income — unlimited if habitual and do not affect standard of living |
| Gifts to spouse / civil partner | Unlimited if UK domiciled |
| Gifts to charities | Unlimited — also reduces IHT rate to 36% if 10%+ of net estate left to charity |
| Gifts to political parties | Unlimited for qualifying parties |
Taper relief explained
If you die between 3 and 7 years after making a gift, taper relief reduces the IHT charged on that gift. The reduction applies to the tax rate, not the value of the gift:
| Years between gift and death | IHT rate on gift |
|---|---|
| Less than 3 years | 40% |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| More than 7 years | 0% (fully exempt) |
Note that taper relief only reduces the tax on the gift itself — it does not affect the nil rate band threshold. The gift is still treated as part of the cumulative total when calculating how much nil rate band is available.
Potentially exempt transfers in practice
A PET becomes fully exempt if you survive 7 years. If you do not, the gift is added back to your estate when calculating IHT. The nil rate band is applied first against gifts made in chronological order (oldest first), before being applied to the estate. This means large PETs made in the 7 years before death can absorb the nil rate band and increase the IHT on the remaining estate.
Good record-keeping is essential. All gifts beyond the exempt amounts should be recorded with their dates and values. This information will be needed by the executors when completing the IHT forms for the estate.
Lifetime gifting strategy
The most tax-effective gifting strategies combine multiple exemptions with careful timing:
- Use the £3,000 annual exemption every year — and carry forward any unused allowance
- Consider regular gifts out of surplus income — these are unlimited if properly documented
- Start larger gifts as early as possible to maximise the chance of surviving 7 years
- Consider writing life insurance in trust to cover any IHT that might arise if you die within 7 years
- Leave at least 10% of your estate to charity in your will to access the reduced 36% IHT rate
For a full overview of inheritance tax planning, see our guide to inheritance tax for UK families.
Frequently asked questions
What is the inheritance tax seven year rule?
Gifts made to individuals more than 7 years before death are completely exempt from inheritance tax. Gifts made within 7 years are potentially chargeable — they are called Potentially Exempt Transfers (PETs) and are added back to the estate if death occurs within 7 years. Taper relief reduces the tax charge on gifts made between 3 and 7 years before death.
How much can I give away free of inheritance tax?
You can give away up to £3,000 per tax year completely free of IHT (the annual exemption), plus unused allowance from the previous year. You can also give unlimited small gifts of up to £250 per person per year, and gifts out of surplus income are also exempt. Gifts exceeding these amounts become PETs and are subject to the 7-year rule.
What is taper relief on gifts?
Taper relief reduces the IHT due on gifts made between 3 and 7 years before death. Gifts made 3–4 years before death are charged at 32% (80% of 40%). Gifts made 4–5 years before death are charged at 24%. Gifts 5–6 years before death at 16%, and gifts 6–7 years before death at 8%. After 7 years, the gift is fully exempt.
Does the 7-year rule apply to gifts to children?
Yes. Gifts to children (or anyone) beyond the annual exemption become PETs and are subject to the 7-year rule. If you die within 7 years of making the gift, the recipient may owe IHT on it, though taper relief applies from year 3 onwards.
Are gifts to charity exempt from inheritance tax?
Yes. Gifts to registered charities are completely exempt from IHT, regardless of the amount or when they were made. If you leave at least 10% of your net estate to charity in your will, the IHT rate on the remainder reduces from 40% to 36%.