Under the UK’s inheritance tax seven-year rule, a gift you make during your lifetime becomes completely free of inheritance tax if you live for seven full years after making it. Die sooner, and the gift is pulled back into your estate for tax purposes, though a sliding scale of relief called taper relief can reduce the rate charged on gifts made more than three years before death. The rule itself has not changed, but frozen thresholds and new caps on farm and business relief mean more gifts are now likely to attract tax if the donor dies within the window.
How the Seven-Year Clock Works
When you give assets to another person during your lifetime, the transfer is called a potentially exempt transfer, or PET. It sits in tax limbo. Survive seven full years from the date of the gift and it drops out of your estate entirely, ignored when inheritance tax is calculated.1Legislation.gov.uk. Inheritance Tax Act 1984 – Section 3A Die before then and the gift comes back into the reckoning.
The clock starts on the exact date the gift is made, not the start of the next tax year. Each gift has its own countdown, so one made five years ago might still count while an older one is safely clear. Precise dates matter, which is why keeping a written record of every substantial gift is worth the small effort.
Taper Relief Between Years Three and Seven
If death falls inside the seven years, taper relief can reduce the rate of inheritance tax charged on gifts made more than three years earlier. It reduces the rate applied, not the value of the gift itself.2Legislation.gov.uk. Inheritance Tax Act 1984 – Section 7 The scale runs:
- 0 to 3 years before death: 40% (the full rate, no taper)
- 3 to 4 years: 32%
- 4 to 5 years: 24%
- 5 to 6 years: 16%
- 6 to 7 years: 8%
After seven full years, nothing is owed.3GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances One point often missed: taper relief only helps when the total gifts made in the seven years before death exceed the nil-rate band of £325,000. If your lifetime gifts fit inside that allowance, no tax is due in the first place and taper relief never comes into play.
How Multiple Gifts Use Up the Nil-Rate Band
Where there are several gifts, HMRC lines them up in chronological order. The earliest gift gets first call on the £325,000 nil-rate band. Once that allowance is used up, later gifts sit above it and become taxable, with taper relief applied to whichever ones qualify by date.
Take someone who gives £200,000 to one child in 2020 and £250,000 to another in 2022, then dies in 2026. The 2020 gift absorbs £200,000 of the nil-rate band. The 2022 gift takes the remaining £125,000, leaving £125,000 exposed to tax. Because that second gift was made four years before death, taper relief brings the rate down to 24%. The recipient of the 2022 gift is primarily responsible for paying that tax, not the estate as a whole. Beneficiaries who assumed their gift was tax-free can end up with an unexpected bill.
Gifts That Are Exempt From the Start
Some gifts never enter the seven-year calculation because they are exempt the moment you make them.
Transfers between spouses and civil partners are fully exempt with no cap and no waiting period. You can pass your entire estate to your partner in life or at death without triggering any inheritance tax. One exception applies where a long-term UK resident transfers to a spouse who is not a long-term UK resident, in which case the exemption is capped at the nil-rate band amount. When the first spouse dies, any unused portion of their nil-rate band passes to the survivor, so a surviving spouse can potentially reach a combined tax-free threshold of £1 million once the residence nil-rate band is added in.
Beyond spousal transfers, several smaller allowances apply each tax year:
- An annual exemption of £3,000 in gifts. If you did not use last year’s, you can carry it forward for one year only, giving up to £6,000 in a single year.3GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances
- Small gifts of up to £250 per person to any number of recipients, provided you have not already used another exemption on that same person.4Legislation.gov.uk. Inheritance Tax Act 1984 – Section 20
- Wedding or civil partnership gifts of up to £5,000 from a parent, £2,500 from a grandparent, and £1,000 from anyone else, per person marrying.3GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances
- Normal expenditure out of income: regular gifts paid from surplus income (not capital) that leave you able to maintain your usual standard of living. There is no cap, but you need to show a pattern and that the money came from income.1Legislation.gov.uk. Inheritance Tax Act 1984 – Section 3A
Gifts With Reservation of Benefit
The seven-year rule only works if you actually let go of what you give. Continue to benefit from the asset and HMRC treats it as a gift with reservation, which means it stays in your estate no matter how many years pass.3GOV.UK. How Inheritance Tax Works: Thresholds, Rules and Allowances
The classic example is giving your home to your children while carrying on living in it rent-free. The same problem applies to gifting a holiday property you still use, or transferring an asset while keeping the income it produces. To make the gift effective, you either have to stop benefiting altogether or pay a full market rent for any continued use. A token payment will not do; the arrangement has to look like something two unconnected parties would agree.
What Has Changed Around the Rule
The seven-year rule itself was not touched in the Autumn Budget 2024. What changed is the surrounding tax landscape, and that makes the rule bite harder.
The nil-rate band stays fixed at £325,000 until the end of the 2030-31 tax year, and the residence nil-rate band of £175,000 (available when a home passes to direct descendants) is frozen for the same period.5GOV.UK. Inheritance Tax Thresholds As asset values keep rising against static thresholds, gifts that once fitted comfortably within the tax-free zone increasingly do not. A £350,000 gift now uses the whole nil-rate band and leaves £25,000 exposed if you die within seven years.
Agricultural and business property relief has also been reshaped. From April 2026, qualifying agricultural and business assets up to £2.5 million per estate get 100% relief. Above that level, relief drops to 50%, giving an effective tax rate of up to 20% on the excess rather than the previous unlimited full relief.6GOV.UK. Inheritance Tax Reliefs Threshold to Rise to 2.5m for Farmers and Businesses The allowance is transferable between spouses and civil partners, so a survivor can pass on up to £5 million of qualifying farm and business assets before this element of the tax applies, on top of the nil-rate bands.7GOV.UK. Agricultural Property Relief and Business Property Relief Changes If you have already made a large gift of business or farm property and die inside the seven years, the new cap may produce a tax charge the old rules would have wiped out.
What Executors Have to Report
After a death, the executor or personal representative must identify and report any gifts made in the seven years beforehand. This goes on the IHT400 inheritance tax account, with the detail set out on supplementary Schedule IHT403.8GOV.UK. IHT400 Inheritance Tax Account
The IHT400 has to reach HMRC within 12 months of death, though interest on any tax due starts running after six months. Missed or inaccurate reporting can bring financial penalties and, in serious cases, prosecution. Your executors will need dates, amounts, and recipient details for every relevant gift, which is why keeping a running log during your lifetime is worth far more than the few minutes it takes each year. Without those records, executors risk either underreporting and facing penalties or overreporting and paying tax that was never owed.