Gifts and Inheritance Tax: the 7-year rule explained

The short version

A gift to another person is usually free of Inheritance Tax if the giver lives for seven years after making it. Some gifts are exempt from day one. Either way, after a death the executor needs a dated list of every gift made in the seven years before it.

A few terms first

• Inheritance Tax (IHT) is a tax on the estate of someone who has died. The estate is everything they owned, less their debts.
• The nil-rate band is the part of an estate on which no tax is due. For the 2026/27 tax year it is £325,000. It is frozen at that level until 5 April 2031.
• The executor is the person who deals with the estate after the death, including any forms for HMRC.
• The tax year runs from 6 April to 5 April the following year. Gift exemptions start again each tax year.

These rules are the same in England, Wales, Scotland and Northern Ireland, because Inheritance Tax is a UK-wide tax.

Potentially exempt transfers (PETs)

Most gifts to another person that are not covered by an exemption are called potentially exempt transfers, or PETs. No tax is due when the gift is made. If the giver lives for seven more years, the gift becomes fully exempt and drops out of the calculation.

If the giver dies within seven years, the gift is said to “fail”. It is added back when Inheritance Tax is worked out, oldest gift first. Failed gifts use up the nil-rate band before the rest of the estate does. If they come to more than the band, the person who received a gift may have to pay tax on it.

Chargeable lifetime transfers (CLTs)

A gift into most kinds of trust is called a chargeable lifetime transfer. Tax can be due when the gift is made, not only on death, and more may be due if the giver dies within seven years. Trusts also have their own tax charges over time. These rules are complex, so you may want to ask a solicitor or tax adviser before any gift into a trust.

Gifts that are exempt straight away

Some gifts are free of Inheritance Tax from the day they are made, with no seven-year wait. The figures below are for the 2026/27 tax year.

Exemption	Limit in 2026/27	Points to know
Husband, wife or civil partner	No limit in most cases	Unmarried partners do not qualify. A lower limit can apply if the partner receiving the gift is not treated as a long-term UK resident.
Charities and qualifying political parties	No limit	Keep the charity’s name, registration number and a receipt.
Annual exemption	£3,000 per giver per tax year	Each giver has their own, so two parents have one each. Unused amounts carry forward one tax year only.
Small gifts	£250 per person per tax year	Cannot be combined with another exemption for the same person in the same year.
Wedding or civil partnership	£5,000 from a parent, £2,500 from a grandparent or great-grandparent, £1,000 from anyone else	Made on or shortly before the day, and the wedding or partnership must go ahead.
Regular gifts from surplus income	No set limit	The gifts must be regular, paid from income, and leave the giver’s usual standard of living intact.

The last exemption depends heavily on records. Our guide to gifts from surplus income explains what HMRC expects to see.

How the annual exemption carries forward

If the £3,000 annual exemption is not fully used in a tax year, the unused part can be carried into the next tax year, but no further. In that next year, the current year’s £3,000 is used first and the carried-forward amount second. Anything still unused after that is lost. So the most the annual exemption can cover in one tax year is £6,000, and only if none of it was used the year before.

The small gifts catch

The £250 small gifts exemption works person by person. If gifts to one person in a tax year add up to more than £250, the small gifts exemption does not cover that person at all, not even the first £250. Those gifts then use the annual exemption instead. A birthday present plus a Christmas present to the same grandchild can be enough to tip over the limit.

Taper relief: what it does and does not do

If the giver dies between three and seven years after a gift, and tax is due on that gift, the tax is reduced on a sliding scale. This is called taper relief. The rates below apply in 2026/27.

Years between gift and death	Tax rate on the gift
Less than 3	40% (no relief)
3 to 4	32%
4 to 5	24%
5 to 6	16%
6 to 7	8%
7 or more	0%

Two points often cause confusion:

• Taper relief reduces the tax on the gift. It does not reduce the value of the gift. A failed gift still uses up the nil-rate band at its full value, whatever the taper.
• Taper relief only helps when there is tax to reduce. That only happens when gifts made in the seven years before death come to more than the nil-rate band (£325,000 in 2026/27). Gifts inside the band have no tax on them, so taper relief changes nothing.

A simple example

This example uses 2026/27 figures and ignores all other exemptions to keep it simple. A father gives his daughter £400,000. He dies four and a half years later, having made no other gifts. The gift uses the whole £325,000 nil-rate band. The £75,000 above the band is taxed at 24% because of taper relief. That is £18,000, instead of £30,000 at the full 40%. The rest of his estate has no nil-rate band left, because the gift used all of it.

Gifts the giver keeps using

If someone gives something away but keeps using it or benefiting from it, HMRC treats it as still part of their estate, however long they live. This is called a gift with reservation of benefit. A common example is giving the home to the children but carrying on living there without paying a full market rent. Arrangements involving a home are complex, so you may want to speak to a solicitor before anything is signed.

Why the records matter for the executor

After a death, the executor has to tell HMRC about gifts made in the seven years before it. Gifts are listed on HMRC form IHT403, which goes with the main Inheritance Tax account (form IHT400) where one is needed. For each gift, the executor needs the date, who received it, their relationship to the giver, what was given, its value and which exemption is being claimed.

Years later, these details are hard to rebuild. Old bank statements may be gone, and family members often remember things differently. Missing records can mean an exemption is never claimed, or a gift is valued wrongly, and the estate may pay more tax than it needed to.

For each gift, it helps to keep:

• the exact date, because one day can change the tax year or the seven-year date
• the name of the person who received it and how they are related to the giver
• the value, and for anything other than money, how the value was worked out
• evidence, such as a bank statement, a cheque stub or a wedding card
• which exemption applies, and why

Gifts can also matter for care funding, which follows different rules. A council does not use the seven-year rule. Our guide to deprivation of assets explains what councils look at.

How Seventide helps

Seventide records each gift with its date, recipient and evidence, and its exemption engine applies the exemptions in a fixed order, with the annual exemption used last, showing its reasoning for every gift. A seven-year clock on each gift shows when each step of taper relief would start and the date the gift becomes fully exempt. The gift schedule exports in an IHT403 layout, as a working schedule for the executor rather than the official form. See all features.

This guide explains published rules in general terms. It is not financial, tax or legal advice, and it may not cover every detail of your family’s situation. Rules and figures can change. For decisions about gifts, trusts or property, you may want to ask a regulated financial adviser, a tax adviser or a solicitor.

Official sources

• GOV.UK: How Inheritance Tax works
• GOV.UK: Inheritance Tax rules on giving gifts
• GOV.UK: Form IHT403, gifts and other transfers of value

Last checked: October 2026, figures for the 2026/27 tax year.