If someone you have lost made significant gifts in the years before they died, those gifts may need to be reported to HMRC and could affect how much inheritance tax the estate owes. The central rule is this: any gift made more than seven years before death is outside the estate for IHT purposes. Gifts made within seven years may be taxable — but the closer to seven years, the less tax applies, thanks to taper relief.
This is one of the more complicated parts of estate administration, and it comes at an already difficult time. This guide explains the rules as clearly as possible — what counts as a gift, how the seven-year clock works, which exemptions apply, and what the executor needs to do. For non-gift exemptions — including business property relief, agricultural relief, and the charity exemption — see our guide to inheritance tax exemptions and reliefs.
What counts as a gift for inheritance tax
For IHT purposes, a gift is broadly any transfer of value — something you give away for less than it is worth, so that your estate is reduced as a result. The following all count as gifts (gov.uk — Gifts and Inheritance Tax):
- Money — cash transfers to individuals, whether by bank transfer or physically
- Property and land — including transferring your home to a family member
- Household and personal possessions — furniture, jewellery, antiques, vehicles
- Stocks and shares (listed shares, or unlisted shares held for less than two years before death)
- Selling something below market value — the difference between the market price and what was paid is treated as a gift
Anything left in a will is not a gift — it is part of the estate and taxed accordingly. It is only transfers made during the person’s lifetime that fall under the gift rules.
What is not a gift
Some transfers are exempt from IHT entirely and do not count towards the seven-year total:
- Gifts to a spouse or civil partner (if both are UK domiciled)
- Gifts to UK-registered charities
- Gifts to political parties that meet certain conditions
- Regular gifts from income (see below)
The 7-year rule
The seven-year rule applies to what HMRC calls potentially exempt transfers (PETs) — outright gifts to individuals that are not immediately chargeable. While the donor is alive, a PET is conditional: survive seven years and the gift falls outside the estate entirely. Die within seven years and it becomes a chargeable transfer (gov.uk — Gifts and Inheritance Tax).
The seven-year period is measured in calendar years from the date the gift was made to the date of death — not tax years.
When gifts become taxable
If the person died within seven years of making a gift, the gift is added back into the estate for IHT purposes. The gifts are applied against the nil-rate band (currently £325,000) in chronological order — oldest gifts first. Once gifts exceed the nil-rate band, IHT becomes payable on the excess.
Crucially, the nil-rate band is used up by gifts before it applies to the rest of the estate. If gifts totalling £325,000 were made in the last seven years, there may be no nil-rate band left to shelter anything else.
Taper relief
If the donor survived at least three years after making a gift, taper relief reduces the IHT rate on that gift. Taper relief only applies to gifts that exceed the nil-rate band — it reduces the tax charged, not the value of the gift itself (HMRC Inheritance Tax Manual — IHTM14612).
| Years between gift and death | IHT rate on the excess |
|---|---|
| 0–3 years | 40% (full rate) |
| 3–4 years | 32% |
| 4–5 years | 24% |
| 5–6 years | 16% |
| 6–7 years | 8% |
| 7+ years | 0% (outside the estate) |
These rates are verified against HMRC guidance (gov.uk — Gifts and Inheritance Tax, HMRC IHTM14612).
A practical note on taper relief: It is often misunderstood. If a gift of £100,000 was made five years before death and the nil-rate band is still fully available, no IHT is due on that gift — taper relief does not come into play because the gift is within the nil-rate band. Taper relief only matters when the cumulative total of gifts exceeds £325,000.
Annual exemptions and small gifts
Several exemptions mean that everyday giving does not trigger IHT at all. These gifts never enter the seven-year running total.
Annual gift allowance
You can give away £3,000 per tax year without it being counted as part of your estate for IHT. This is known as the annual exemption. If you do not use it in full in one tax year, you can carry the unused portion forward to the next year — but only one year, and only once. So the maximum you can give under this exemption in a single year is £6,000 (using the current and previous year’s allowance together) (gov.uk — Gifts and Inheritance Tax).
The annual exemption applies to total gifts across the year, not per recipient.
Small gifts exemption
You can give any number of gifts of up to £250 per person per tax year free of IHT, provided you have not used any other exemption in relation to the same person. So you could give £250 each to 20 different people in a single tax year with no IHT implications. You cannot combine this with the annual exemption — giving one person £3,000 plus £250 in the same year does not work.
Wedding and civil partnership gifts
Gifts made on or shortly before a wedding or civil partnership registration are exempt up to set limits (gov.uk — Gifts and Inheritance Tax):
| Relationship of giver to couple | Tax-free limit per person |
|---|---|
| Parent of the bride or groom | £5,000 |
| Grandparent or great-grandparent | £2,500 |
| Anyone else | £1,000 |
These can be combined with the annual exemption — a parent could give £8,000 to a child on their wedding day (£5,000 wedding exemption plus £3,000 annual exemption) without IHT implications.
Regular gifts from income
Gifts made as part of normal expenditure out of income are exempt — provided they come from surplus income (not capital), are made regularly, and do not affect the donor’s standard of living. This can be a powerful exemption for those with reliable income above their living costs: regular monthly transfers to children, for instance, or paying a grandchild’s school fees from regular income. There is no upper limit, but the pattern of regular giving needs to be evidenced (gov.uk — Gifts and Inheritance Tax).
Gifts with reservation of benefit
A gift with reservation of benefit is one where the donor continues to benefit from the asset after giving it away. The most common example is giving away your home but continuing to live in it rent-free. In this situation, the gift does not leave the estate for IHT purposes — HMRC treats the asset as still belonging to the donor, regardless of how long ago the transfer took place (gov.uk — Gifts and Inheritance Tax).
This is a trap that catches people who try to reduce their IHT bill by transferring their home to their children while still living in it. The seven-year clock does not apply if the reservation of benefit continues. The asset remains in the estate until the reservation ends — at which point, if the donor then survives a further seven years, it may eventually leave the estate.
If the donor did pay market-rate rent on the property after the transfer, the reservation of benefit rules do not apply — but this needs to be documented carefully.
What happens if someone dies within 7 years of making a gift
When someone dies, the executor must identify all gifts made in the seven years before death that are not covered by an exemption. The gov.uk guidance on working out IHT due on gifts sets out the process.
The running total method
Gifts are listed in chronological order and a running total is kept. The first gifts absorb the nil-rate band — until the total exceeds £325,000, no IHT is due. Once the running total crosses that threshold, IHT is due on the portion above it.
Example: A person makes three gifts:
- January 2020: £200,000 (running total: £200,000 — within NRB, no tax)
- June 2021: £100,000 (running total: £300,000 — still within NRB, no tax)
- March 2022: £57,000 (running total: £357,000 — £32,000 above NRB; IHT due on £32,000)
They die in April 2025. All three gifts fall within seven years. The March 2022 gift is taxed on £32,000 — at the appropriate taper rate based on years survived.
Who pays
The recipient of the gift is responsible for paying the IHT on it. If the tax remains unpaid 12 months after death, the executor of the estate may become liable (gov.uk — Gifts and Inheritance Tax). For large or complex gifts, it is worth identifying the recipients early in estate administration and making contact.
How gifts interact with the nil-rate band for the rest of the estate
Gifts use up the nil-rate band first. If someone gave away £325,000 or more in the seven years before death, there may be no nil-rate band left for the rest of the estate — meaning the full 40% rate applies to everything above zero. This is why documenting lifetime gifts matters so much, and why our guide on the nil-rate band is worth reading alongside this one.
Gifts between spouses and civil partners
Transfers between spouses and civil partners are entirely exempt from inheritance tax, with no limit on the amount — provided both parties are UK domiciled. There is no seven-year rule, no taper relief, and no annual cap. The full value of assets transferred between spouses during their lifetime passes free of IHT (gov.uk — Gifts and Inheritance Tax).
This exemption also applies to assets passing under the will — but note that this creates the transferable nil-rate band situation covered in our nil-rate band guide. Assets left to a spouse pass free of IHT, which means the nil-rate band is unused at first death — but it is then available to be claimed by the survivor’s estate.
Common questions
Does the 7-year rule apply to gifts to children?
Yes. Gifts to children are potentially exempt transfers under the same rules as gifts to anyone else. If a parent gives their adult child a cash sum or transfers a property to them, the seven-year rule applies. If the parent survives seven years, the gift falls outside the estate entirely. If not, the gift is added to the running total of gifts and taxed accordingly, with taper relief applying where the parent survived at least three years. The annual exemption (£3,000), small gifts (£250 per person), and wedding gift allowances (£5,000 from a parent) can all reduce or eliminate the taxable element for smaller, regular gifts.
Can I give my house away to avoid inheritance tax?
Transferring your home to your children is not a straightforward way to reduce IHT. If you continue to live in the property rent-free after the transfer, the gift with reservation of benefit rules mean the home remains in your estate regardless of when the transfer happened — the seven-year clock does not run. To remove the property from your estate, you would need to either pay a market-rate rent to the new owners (and have this properly documented) or move out entirely. Even then, you would need to survive seven years from the date the reservation of benefit ended. This is a specialist area and the interactions with capital gains tax, stamp duty land tax, and the RNRB are complex — professional advice from a solicitor or tax adviser is strongly recommended before taking any action.
Summary
The seven-year rule is central to how inheritance tax treats lifetime gifts. Gifts made more than seven years before death are outside the estate; those made within seven years may be taxable, with taper relief reducing the rate for gifts made three to seven years before death. Everyday giving is largely protected by the annual exemption (£3,000), small gifts allowance (£250 per person), and wedding gift exemptions.
For executors, the key task is building a complete picture of gifts made in the seven years before death, identifying which are covered by exemptions, and calculating whether any exceed the nil-rate band. Our guide on executor duties covers this as part of the broader estate administration process.
For more on how inheritance tax works, see our inheritance tax overview and the guide to the nil-rate band.
All figures verified against HMRC and gov.uk guidance, March 2026. The nil-rate band of £325,000 and current exemption amounts are confirmed for 2025/26. This guide covers England, Wales, and Scotland. It is for information only and does not constitute legal or tax advice. For complex estates — particularly those involving large gifts, trusts, business property, or gifts with reservation — a solicitor or tax adviser can save considerable time and money.