The 7 year rule for inheritance tax: how gifts before death are treated
This guide covers how the 7 year rule works, how taper relief is calculated, which gifts are exempt whatever the date, and what the November 2025 Autumn Budget changed.
How does the 7 year rule work?
The 7 year rule works by making most lifetime gifts free of inheritance tax once the giver has survived 7 years from the date of the gift. The clock starts on the date of the gift, not on the date of death.
Most lifetime gifts to individuals are called potentially exempt transfers, or PETs. A potentially exempt transfer becomes fully exempt from inheritance tax at the seventh anniversary of the gift.
If the giver dies within 7 years, the gift is added back into the estate for inheritance tax purposes. Whether tax is actually charged depends on whether cumulative gifts in that 7 year period exceed the £325,000 nil rate band. Current figures and the transferable allowance sit in the guide to the inheritance tax threshold.
A gift into most trusts is a chargeable lifetime transfer, or CLT, and may be taxed at 20% immediately if the gift exceeds the nil rate band. This guide covers potentially exempt transfers, which is what most family gifts are.
What is taper relief?
Taper relief reduces the rate of inheritance tax charged on a gift when the giver survives at least 3 years after making it. Taper relief starts on the third anniversary of the gift and runs out on the seventh.
Taper relief rates run by the number of years between the gift and the death:
0 to 3 years: 40%, the full inheritance tax rate with no reduction.
3 to 4 years: 32%, the first band in which taper relief applies.
4 to 5 years: 24%, charged on the part of the gift above the nil rate band.
5 to 6 years: 16%, charged on the part of the gift above the nil rate band.
6 to 7 years: 8%, the lowest taper relief rate.
7 years or more: 0%, the gift is outside the estate completely.
Two things about taper relief are commonly misread.
First, taper relief reduces the tax rate on the gift. Taper relief does not reduce the value of the gift, and the full gift still counts against the £325,000 nil rate band.
Second, taper relief only matters if cumulative gifts in the 7 years before death exceed the nil rate band. Gifts use up the nil rate band first, and the taper relieved rate only applies to the part of the gift above £325,000. Where cumulative gifts stay below £325,000, taper relief never comes into play.
How is taper relief on gifts calculated?
Taper relief on gifts is calculated by applying the tapered rate to the part of the gift above the £325,000 nil rate band, never to the whole gift.
David gives his daughter £400,000 in July 2020. David dies in September 2025, just over 5 years later. David made no other gifts in the preceding 7 years.
The first £325,000 of the gift uses up David's entire nil rate band. The remaining £75,000 is taxable.
Because the gift was made between 5 and 6 years before death, taper relief applies at 16% rather than the full 40%. The inheritance tax on the gift is 16% of £75,000, which is £12,000.
Without taper relief, the tax would have been 40% of £75,000, which is £30,000. Taper relief saved David's daughter £18,000.
David's death estate now has no nil rate band left, because the lifetime gift used all of it. Anything in David's estate above the residence nil rate band, where that band applies, is taxed at 40% from the first pound.
This is why large lifetime gifts can backfire when the giver dies before the 7 years are up.
Which gifts are always exempt from inheritance tax?
Several types of gift are exempt from inheritance tax whatever the date they were made, so the 7 year rule never applies to them (GOV.UK).
The annual exemption lets a person give away £3,000 in each tax year with no inheritance tax, and unused annual exemption can be carried forward by one year, and one year only.
The small gifts exemption covers gifts of up to £250 per person per tax year, provided no other exemption has been used for that same person.
The remaining exemptions are:
Wedding or civil partnership gifts: £5,000 to a child, £2,500 to a grandchild, and £1,000 to anyone else.
Gifts out of regular income: exempt, provided the gifts come from normal expenditure and do not reduce the giver's standard of living.
Gifts to a UK-resident spouse or civil partner: exempt, with no 7 year clock.
Gifts to UK-registered charities, political parties and qualifying national bodies: exempt, with no 7 year clock.
These exemptions are powerful when used consistently. A couple using their annual exemptions in full can move £6,000 a year out of their estate, or £60,000 over 10 years, with no 7 year rule concerns at all.
What is a gift with reservation?
A gift with reservation is a gift where the giver carries on benefiting from the asset, and HMRC treats that asset as still part of the estate. The 7 year clock does not start on a gift with reservation.
The classic example is giving your house to your child while continuing to live in it rent-free. The house still counts as part of the estate at death.
There are exceptions. The gift with reservation rules can be avoided by paying full market rent for the use of the asset. The arrangement has to be commercial and properly documented.
Why does the executor need a record of gifts?
The executor has to declare any gifts made in the 7 years before death on the inheritance tax return, so the evidence has to exist. HMRC asks the question directly.
HMRC checks bank statements, asset registers and other records for evidence of unreported transfers. If the executor cannot evidence that a gift met one of the always exempt categories, HMRC may treat the gift as a potentially exempt transfer and tax it accordingly.
A simple gifts log, kept up to date, saves the executor a lot of work and protects beneficiaries from avoidable tax. Record the date of each gift, the recipient, the amount, and which exemption is being used, if any. Gathering that evidence is part of what an executor of a will does.
Did the 2025 Autumn Budget change the 7 year rule?
No. The 7 year rule survived the November 2025 Budget unchanged, and so did the taper relief rates and every gift exemption set out above.
Three inheritance tax changes were announced:
The nil rate band: frozen at £325,000 until April 2031, confirming an existing freeze.
Agricultural Property Relief and Business Property Relief: capped at 100% on the first £1 million of qualifying assets from April 2026, with 50% relief on anything above that.
Unused defined contribution pension pots: brought into the inheritance tax net from April 2027.
The pension change is significant. Pensions have been a major route for passing wealth on outside the estate, and from April 2027 that route narrows, as set out in the guides to what happens to a pension when someone dies and defined contribution pensions and inheritance tax. Anyone with substantial pension savings who is weighing up lifetime gifts should allow for the 7 years a gift takes to fall outside the estate.
What should an executor do about gifts made before death?
The executor should identify every gift the deceased made in the 7 years before death, work out which exemptions apply, and report the rest to HMRC. Five practical steps cover it:
Ask close family whether the deceased made any significant gifts in the past 7 years.
Check bank statements for large transfers in that period.
Identify which exemption applies to each gift.
Calculate any tax due on potentially exempt transfers that fall within the 7 year window.
Include the gifts on the inheritance tax return, form IHT400 or IHT205, depending on the estate value.
The forms follow the valuation, which is covered in how to value an estate for probate. Telling HMRC that the person has died is a separate job, covered in how to notify HMRC after a death.
The gifts themselves cannot be undone, but if you inherit you can redirect your share with a deed of variation signed within 2 years of the death.
Estates with clean records are administered faster and at lower professional cost. Estates without them often run into HMRC enquiries, family disputes and extra months of work.
How do you notify every company after a death?
Most families notify each company separately, contacting banks, pension schemes, utilities, insurers and subscription services one at a time. That means repeating the same details on every call and sending the same documents again and again. Legacy Trail finds the accounts and services the person held and notifies them centrally, so you give the details once.
Frequently asked questions
You can give away £3,000 in each tax year under the annual exemption with no inheritance tax, and unused annual exemption carries forward by one year only. The small gifts exemption separately covers up to £250 per person per tax year, provided no other exemption has been used for that person.
No. Taper relief only applies where cumulative gifts in the 7 years before death exceed the £325,000 nil rate band, because gifts use up the nil rate band first. Taper relief also starts only at the third anniversary, so a gift made 2 years before death is taxed at 40%.
Not in the same way. A gift into most trusts is a chargeable lifetime transfer rather than a potentially exempt transfer, and it may be taxed at 20% immediately if the gift exceeds the £325,000 nil rate band. The 7 year rule described here covers gifts to individuals.
Yes, but the 7 year clock does not start if the giver keeps a benefit from the house. HMRC calls that a gift with reservation, and the house still counts as part of the estate at death. Paying full market rent avoids the rules if the arrangement is commercial and documented.
Yes. The executor has to declare any gifts made in the 7 years before death on the inheritance tax return. HMRC checks bank statements, asset registers and other records for unreported transfers. If the executor cannot evidence that a gift was exempt, HMRC may tax the gift as a potentially exempt transfer.
No. The 7 year rule survived the November 2025 Autumn Budget, and the taper relief rates and gift exemptions are unchanged. The Budget kept the nil rate band frozen at £325,000 until April 2031 and brought unused defined contribution pension pots into the inheritance tax net from April 2027.
This article is for general information only and does not constitute legal advice. Individual circumstances vary. If you are dealing with an estate, consider taking advice from a solicitor who specialises in probate. For other guidance specific to your circumstances, speak to a funeral director, Citizens Advice, or a regulated financial adviser.