7-Year Rule for Gifts Explained: IHT Taper Relief 2026

What is the 7-Year Rule for Gifts?

The 7-year rule states that gifts you make during your lifetime become exempt from inheritance tax if you survive for seven years after making them. These gifts are called "potentially exempt transfers" (PETs) because their tax status depends on how long you live after giving them away.

If you die within seven years of making a gift that exceeds your available exemptions, that gift gets added back to your estate for inheritance tax purposes. The gift uses up your nil-rate band first, before any of your remaining estate is taxed. This can result in higher tax bills than expected, especially if you have made substantial gifts in the years before death.

Crucially, the 7-year rule only matters for gifts above your annual exemptions. Gifts within your annual £3,000 allowance, small gifts under £250, and gifts to your spouse are already completely exempt regardless of how long you survive. The 7-year clock only starts ticking on gifts that exceed these limits.

Current IHT Thresholds

Before understanding how gifts interact with inheritance tax, you need to know the current thresholds. These determine how much of your estate (including failed PETs) can pass tax-free.

The key point for gift planning: when you die within seven years of making a gift, that gift uses up your nil-rate band first. If your gifts exceed £325,000, the excess is taxed immediately. Any remaining NRB then applies to your estate at death. For a complete overview of how these allowances work together, see our complete guide to inheritance tax.

When the 7-Year Rule Does and Doesn't Apply

The application of the 7-year rule depends heavily on your circumstances. Here are the key situations where the rules work differently.

If you're married or in a civil partnership

Gifts between spouses and civil partners are completely exempt from inheritance tax with no limit and no 7-year rule. You can give your entire estate to your spouse today, and there is no inheritance tax consequence whatsoever—provided they are UK-domiciled. This spousal exemption is immediate and unlimited.

However, this just defers the tax problem. When the surviving spouse dies, their estate (now including everything from the first spouse) may face a larger IHT bill. See our married couple case study for strategies that balance spousal gifts with overall estate planning.

If you've made regular gifts from income

Gifts made as "normal expenditure out of income" are exempt immediately—no 7-year wait required. To qualify, the gifts must:

• Be made from your regular income (not capital)
• Form part of a pattern of giving
• Leave you with enough income to maintain your normal standard of living

This exemption has no upper limit. Parents who regularly pay school fees, contribute to grandchildren's savings accounts, or make monthly gifts to family members can potentially give away substantial sums completely tax-free. The key is demonstrating a regular pattern and proving the gifts come from income rather than savings.

If you're giving away property

Gifting property comes with additional complications. If you give away your home but continue living in it, HMRC treats this as a "gift with reservation of benefit." The property remains in your estate for IHT purposes despite the gift—the 7-year rule does not apply.

To avoid this, you must either move out completely or pay market-rate rent to the new owner. Even then, if you move back in later (perhaps for care needs), the gift with reservation rules can apply from that point. Property gifts require careful planning and usually professional advice.

If you've already used your nil-rate band

Failed PETs (gifts made within 7 years of death) use up your nil-rate band before your remaining estate does. This ordering is crucial to understand.

Suppose you gave £300,000 to your children five years ago and die with an estate worth £400,000. The £300,000 gift applies first against your £325,000 NRB, leaving only £25,000 of NRB for your remaining estate. The remaining £375,000 of your estate is taxed at 40%, resulting in £150,000 in IHT.

Without the gift, the full £325,000 NRB would apply to your estate, and only £75,000 would be taxable—resulting in just £30,000 IHT. The gift that was intended to save tax actually increased it by £120,000.

Taper Relief Explained

Taper relief reduces the inheritance tax rate on gifts made between three and seven years before death. This sliding scale gives partial relief for gifts that survive most—but not all—of the 7-year period.

Critical point: Taper relief applies to the tax payable, not to the value of the gift. The gift still uses up your nil-rate band in full. Taper relief only helps when the gift exceeds your available NRB and would otherwise generate a tax charge.

This means a £350,000 gift made 5 years before death uses up all £325,000 of your NRB regardless of taper relief. Only the £25,000 excess attracts the tapered 16% rate (rather than 40%). Many people misunderstand this and believe the entire gift is taxed at the lower rate.

Exempt Gifts

Several categories of gifts are completely exempt from inheritance tax immediately, with no 7-year waiting period. Use these exemptions strategically before making larger gifts that trigger the PET rules.

Annual exemption: £3,000

Each tax year, you can give away £3,000 completely free of IHT. If you didn't use your exemption last year, you can carry it forward for one year only—giving a maximum of £6,000 in a single year. Both spouses have their own annual exemption, so a couple can give £12,000 in their first year of gifting (using two years' allowances each).

Small gifts: £250 per recipient

You can make unlimited gifts of up to £250 per person per year, provided you haven't used any other exemption for that person. This is separate from the annual exemption—you cannot combine them for the same recipient. It's useful for birthday gifts, Christmas presents, and regular small amounts to multiple family members.

Wedding gifts

Gifts in consideration of marriage have their own exemptions:

• Parents: up to £5,000 each
• Grandparents: up to £2,500 each
• Anyone else: up to £1,000

The gift must be made before or at the time of the wedding. Gifts made after the wedding do not qualify for this exemption (though they may qualify under other exemptions).

Spouse or civil partner: unlimited

As noted above, gifts between spouses and civil partners are completely exempt with no limit, provided the recipient is UK-domiciled. If your spouse is not UK-domiciled, there is a £325,000 lifetime limit on exempt transfers to them.

Charity: unlimited

Gifts to registered charities are fully exempt. Additionally, if you leave at least 10% of your net estate to charity in your will, the IHT rate on the rest of your estate reduces from 40% to 36%.

Worked Example: Gift Made Four Years Before Death

Let's work through a realistic scenario to show how the 7-year rule and taper relief operate together.

Use our gift taper relief calculator to model your own scenarios.

What's Changing

While the 7-year rule itself isn't changing, several related reforms may affect your gift planning strategy.

April 2026: APR and BPR caps

April 2027: Pensions included in estates

Threshold freeze to 2030

The £325,000 NRB has been frozen since 2009 and will remain frozen until at least April 2030. In real terms, it's worth roughly half what it was when introduced. This makes the 7-year rule increasingly valuable—getting assets out of your estate through lifetime gifts becomes more attractive as the frozen threshold covers less of typical estates.

Frequently Asked Questions

Do I need to report gifts to HMRC while alive?

No. There is no requirement to report lifetime gifts to HMRC while you are alive. However, you should keep detailed records of all gifts—date, recipient, value, and any exemptions claimed. Your executors will need this information to complete the inheritance tax return after your death. HMRC can ask for records going back 14 years in some circumstances.

What if I continue to benefit from a gift I've given?

If you continue to benefit from something you've given away, it's treated as a "gift with reservation of benefit." The asset remains in your estate for IHT purposes despite the gift. Common examples include giving away your home but continuing to live there rent-free, or giving away investments but continuing to receive the income. The 7-year rule does not apply to these gifts—they remain in your estate until you stop benefiting.

Can I give my house away and keep living in it?

Not effectively for IHT purposes. If you give away your home but continue living there without paying market rent, it's a gift with reservation. The property stays in your estate. You would need to either move out completely, or pay your children full market rent for the property. Even paying rent creates income tax implications for them. This is an area where professional advice is essential.

What happens to gifts made within 7 years of death?

They become "failed PETs" and are added back to your estate. The gifts use up your nil-rate band first (starting with the earliest gift). Any gift value exceeding the NRB is taxed at 40%, reduced by taper relief if the gift was made 3-7 years before death. The tax on failed PETs is normally paid by the recipient of each gift, not from the estate.

Are gifts to my spouse subject to the 7-year rule?

No. Gifts between spouses and civil partners are completely exempt from inheritance tax with no time limit. However, remember that this just moves assets from one estate to another—your spouse's estate may then have the IHT liability instead. For non-UK domiciled spouses, there is a lifetime limit of £325,000 on exempt transfers.

Next Steps

1. List your significant gifts: Review gifts you have made in the last seven years. Note the date, value, and recipient of each gift over £3,000.
2. Calculate potential IHT exposure: Use our gift taper relief calculator to see how recent gifts might affect your estate.
3. Check which exemptions apply: Have you used your annual exemption? Do any gifts qualify as normal expenditure from income? Could wedding gift exemptions apply?
4. Model your overall position: Estate Map's free IHT calculator shows how gifts interact with your full estate, including nil-rate bands and RNRB.
5. Consider professional advice: For large gifts, property transfers, or complex family situations, consult a solicitor or tax adviser who can review your specific circumstances.