Gift & IHT 7-Year Details
📊 7-Year Taper Relief Breakdown
Gifting assets or cash during your lifetime is one of the most effective ways to reduce your UK Inheritance Tax (IHT) liability.
Under UK tax legislation, lifetime gifts made to individuals are classed as Potentially Exempt Transfers (PETs). If you survive for 7 complete years after giving the gift, it becomes 100% tax-free.
⚙️ Statutory 7-Year Taper Relief Rates for 2026/27
If the donor dies within 7 years of making a gift that exceeds the £325,000 Nil Rate Band, Taper Relief reduces the effective Inheritance Tax rate charged on the gift:
Statutory Taper Relief Schedule
- 0 to 3 Years: 40.0% IHT (0% Taper Reduction).
- 3 to 4 Years: 32.0% IHT (20% Taper Reduction).
- 4 to 5 Years: 24.0% IHT (40% Taper Reduction).
- 5 to 6 Years: 16.0% IHT (60% Taper Reduction).
- 6 to 7 Years: 8.0% IHT (80% Taper Reduction).
- 7+ Years: 0% IHT (100% Tax-Free PET).
Statutory Lifetime Gift Exemptions
Before taper relief applies, certain gifts are immediately exempt:
- Annual Gift Exemption: Up to £3,000 per tax year (unused carried forward 1 year).
- Wedding Gifts: Up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else.
- Normal Expenditure out of Surplus Income: Gifts made regularly out of excess income that do not reduce your standard of living are 100% tax-free immediately.
📊 Practical 7-Year Taper Relief Worked Examples
Below are two worked calculation examples illustrating taper relief savings:
- Gift Amount: **£100,000.00**
- Years Between Gift and Death: **4.5 Years** (4 to 5 Year Band)
- Statutory Taper Relief Discount: **40% Reduction**
Calculation: Full IHT rate (40%) reduced by 40% discount = 24.0% effective tax rate. Tax payable = £100,000 × 24.0% = £24,000.00.
- Gift Amount: **£100,000.00**
- Years Between Gift and Death: **6.5 Years** (6 to 7 Year Band)
- Statutory Taper Relief Discount: **80% Reduction**
Calculation: Full IHT rate (40%) reduced by 80% discount = 8.0% effective tax rate. Tax payable = £100,000 × 8.0% = £8,000.00.
📑 Common Pitfalls & Gift Warnings
- Believing Taper Relief Reduces Tax on Estates Under £325,000: Taper relief ONLY applies to tax on gifts that exceed the £325,000 Nil Rate Band. Lifetime gifts use up the £325,000 tax-free threshold first before the main estate.
- Gift with Reservation of Benefit (GROB): If you gift a house to a child but continue living in it rent-free, the 7-year clock NEVER starts. The property remains inside your estate for 40% IHT upon death.
- Failing to Keep Contemporaneous Gift Logs: HMRC requires executors to provide detailed records of all lifetime gifts made in the 7 years prior to death. Keep a written gift log with dates, bank statements, and recipient details.
❓ Frequently Asked Questions (FAQ)
By default under UK law, the recipient of the gift is legally responsible for paying any Inheritance Tax due on gifts made within 7 years of death. If the recipient cannot pay, HMRC collects from the estate executor.
Gifts made into discretionary trusts (rather than directly to individuals) are Chargeable Lifetime Transfers (CLTs). They incur an immediate 20% IHT charge on amounts over £325,000 at the time of transfer.
The first £3,000 of gifts made each tax year is immediately exempt and ignored. If you did not use your £3,000 allowance in the previous tax year, you can gift up to £6,000 tax-free in a single year.
Yes. If you make regular gifts out of your net post-tax income (such as monthly payments to a grandchild) and your standard of living is maintained, the gifts are 100% exempt from the 7-year rule from day one.