Inheritance Tax on Gifts: 7-Year Rule & Taper Guide (2026/27)
How inheritance tax applies to gifts: the 7-year rule, the exemptions you can use every year, taper relief in plain numbers, and the gifting mistakes that cost families thousands.
What is the 7-year rule?
Gifts you make while you are alive are Potentially Exempt Transfers (PETs). If you survive 7 years after making a gift, it is completely free of inheritance tax.
If you die within 7 years, the gift is brought back into your estate and may use up part of your £325,000 nil rate band. HMRC applies the band in date order – your oldest gifts use it first.
The key number: only gifts plus your estate above £325,000 are taxed at 40%, reduced by taper relief if the gift was made 3–7 years before death.
Gifts that are always exempt
| Exemption | Amount | Notes |
|---|---|---|
| Annual exemption | £3,000 per tax year | Unused allowance rolls over one year only (max £6,000) |
| Small gifts | £250 per person | Cannot also receive part of the annual exemption |
| Wedding gifts | Child £5,000 · Grandchild £2,500 · Couple £2,500 · Other £1,000 | One-off per marriage |
| Spouse / civil partner | Unlimited | Fully exempt |
| UK charities | Unlimited | Fully exempt |
| Normal expenditure out of income | Unlimited | Regular gifts from surplus income that do not reduce your standard of living |
How taper relief works (in plain numbers)
Taper relief reduces the tax rate on gifts made 3–7 years before death – it does not reduce the value of the gift. It only helps when your gifts plus estate exceed the nil rate band.
| Years between gift and death | % of the 40% rate charged | Effective rate |
|---|---|---|
| 0–3 | 100% | 40% |
| 3–4 | 80% | 32% |
| 4–5 | 60% | 24% |
| 5–6 | 40% | 16% |
| 6–7 | 20% | 8% |
Example: a £400,000 gift made 6–7 years before death would use £72,000 of nil rate band headroom above the exemption, and pay 40% × 20% = 8% on it – far less than a gift made within 3 years.
Common gifting scenarios
- Helping a child buy a house – counts as a gift. The £3,000 annual exemption applies first, then the nil rate band. Plan 7 years ahead where you can.
- Wedding gifts – up to £5,000 to a child, £2,500 to a grandchild or between the couple, £1,000 to anyone else, exempt one-off per marriage.
- Regular gifts from income – rent, mortgage or school-fee help paid out of surplus income can be fully exempt as normal expenditure, even above £3,000.
- Gift with reservation – give away a house but keep living in it and the 7-year rule does not apply; the house stays in your estate. Always get advice before gifting property.
Work out the tax on a gift in seconds
Our free calculator handles the annual exemption, nil rate band interaction and taper relief with official 2026/27 rates.
Check your gift →Inheritance tax gift FAQs
How does the 7-year rule work for inheritance tax on gifts?
Gifts within 7 years of death are added back to your estate and may attract IHT. Gifts more than 7 years before death are fully exempt. Chargeable gifts use your £325,000 nil rate band in date order, oldest first.
How much can I gift tax-free each year?
£3,000 (annual exemption, rolls over one year), £250 per person in small gifts, wedding gifts up to £5,000, and unlimited regular gifts out of your income. Spouse and UK charity gifts are fully exempt.
What is taper relief on inheritance tax?
It reduces the tax rate on gifts made 3–7 years before death (80% at 3–4 years down to 20% at 6–7 years), but only when the estate and gifts together exceed the nil rate band.
What is a gift with reservation?
Gifting an asset but continuing to benefit from it. The 7-year rule does not apply and the asset stays in your estate.
Related guides: How to reduce Capital Gains Tax · Self Assessment guide · Tools: IHT Gift Calculator · NI Calculator