Inheritance Tax on Gifts UK 2026: 7-Year Rule, PETs, Exempt Gifts, and Everything You Need to Know
You can give any amount away — but only gifts that meet the right conditions escape IHT. PETs need 7 years. Annual exemption (£3,000), wedding gifts, normal expenditure from income, and spousal gifts are immediately exempt. Gift-with-reservation traps keep assets in your estate regardless.
| Gift Type | Statute | Who Can Receive | IHT at Time of Gift | 7-Year Rule | Taper Relief |
|---|---|---|---|---|---|
| Potentially Exempt Transfer (PET) | s3A IHTA 1984 | Individual to individual; individual to bare trust (e.g. absolute gift for a child held by trustees) | £0 — immediately exempt on the date of gift; no IHT payable at the time of the gift regardless of the amount | IHT-free if donor survives 7 full years from the gift date. If donor dies within 7yr: PET is drawn back into estate (s3A(4) IHTA). Cumulation: PETs also use up the NRB in the 7yr before death, affecting the NRB available for the rest of the estate. | Taper relief (s7(4) IHTA) applies only if donor survives more than 3yr from gift date: yr0-3: 100% (no taper); yr3-4: 80% of applicable rate; yr4-5: 60%; yr5-6: 40%; yr6-7: 20%. Taper reduces the RATE on the PET's IHT charge — not the value of the PET in the cumulation. Above the NRB on death only. |
| Chargeable Lifetime Transfer (CLT) | ss2, 3, 7 IHTA 1984 | Gifts to DISCRETIONARY trusts; gifts to most other trusts (not bare trusts or IPDIs). Gifts to companies are also CLTs. | Immediate IHT at 20% (or 25% if the settlor pays) on the amount above the NRB at the time of the gift. If below the NRB: no immediate IHT, but the CLT uses up NRB in the 7yr cumulation. HMRC IHT100 form required if CLT exceeds the available NRB. | If donor dies within 7yr of the CLT: further top-up IHT may be charged at 40% on death (less 20% already paid at lifetime; taper applies if 3-7yr survival). CLTs within 7yr before a later PET affect the NRB available against that PET on death (14-year rule: CLTs within 7yr before the death go into the cumulation for the PETs made in the 7yr before death). | Taper relief (s7(4) IHTA) applies to the top-up death charge: same percentages as PETs. The 20% lifetime charge paid is credited against the 40% death rate (taper applied first to the gross death rate, then the 20% credit reduces the balance). May result in no additional IHT if taper reduces the effective rate below 20%. |
| Annual exemption | s19 IHTA 1984 | Any recipient — any number of people; any amounts totalling up to £3,000 per donor per tax year (6 April to 5 April). | IMMEDIATELY EXEMPT — no 7yr clock; no PET; no IHT risk on the £3,000. Each donor has their own £3,000 annual exemption. Carry-forward: if unused in the prior tax year (s19(2) IHTA), the prior year's £3,000 can be carried forward — used in the current year only — giving a maximum of £6,000 in one year (if both current year and prior year are fully unused). ONLY one year carry-forward. | None — immediately and permanently exempt. | Not applicable — no IHT arises. |
| Small gifts exemption | s20 IHTA 1984 | Up to £250 per recipient per donor per tax year. The £250 limit applies per RECIPIENT — a donor can give £250 to any number of separate recipients in a tax year. CANNOT be combined with the annual exemption for the same recipient (if you give someone £500, you must apply the annual exemption; the small gifts exemption cannot top up). | IMMEDIATELY EXEMPT on amounts up to £250 per recipient. Amount above £250 to any recipient in the year must use the annual exemption or be a PET. Note: the £250 is a per-recipient per-donor ceiling — there is no total across all recipients. | None — immediately exempt. | Not applicable. |
| Wedding gift exemption | s22 IHTA 1984 | Gifts made in consideration of and conditional on the marriage or civil partnership of the recipient. Must be on or before the wedding day. Amounts: £5,000 from parent of either party; £2,500 from grandparent, remoter ancestor, or one party to the other; £1,000 from any other person. | IMMEDIATELY EXEMPT within the s22 limits. Can be combined with the annual exemption (s19) and the carry-forward for the same gift. If the wedding does not proceed after the gift: the s22 exemption is lost; gift becomes a PET from the original gift date. | None within s22 limits — immediately exempt. Excess above s22 limits: PET. | Not applicable within limits. |
| Normal expenditure from income | s21 IHTA 1984 | Gifts made out of surplus income as part of a regular, established pattern of giving. Criteria: (1) gift from INCOME (not capital); (2) part of a NORMAL (habitual, regular) pattern; (3) donor's standard of living is not reduced. HMRC IHTM14231: gifts that form an established pattern qualify. Amount: UNCAPPED — no monetary limit. Forms: regular gifts to children; paying grandchildren's school fees; standing order payments; life insurance premiums paid from income. | IMMEDIATELY EXEMPT and UNCAPPED — no 7yr clock; no IHT risk regardless of amounts. The pattern must be established before or during the period; a sudden new pattern started near death will be challenged. | None — immediately exempt if the s21 conditions are met. | Not applicable. |
| Gift with reservation of benefit (GWR) | s102 Finance Act 1986 | Any gift where the donor retains a benefit or interest in the gifted property (directly or indirectly). Classic example: donor gives their house to a child but continues to live there rent-free. GWR assets are NOT PETs — no 7yr clock runs; the asset STAYS in the donor's estate for IHT until the reservation ceases. | The gifted asset remains in the donor's estate for IHT regardless of when the gift was made. If the reservation ceased during the donor's lifetime (e.g., the donor starts paying market rent), the asset becomes a PET on the date the reservation ceases — and a 7yr clock runs from THAT date. | No PET during GWR — no 7yr clock runs while reservation continues. PET on cessation of reservation (if donor is still alive when reservation ceases). Pre-Owned Assets Tax (POAT — Finance Act 2004 Sch 15): if GWR is avoided by paying market rent, POAT income tax may apply. | Not applicable while GWR continues. If reservation ceases: treated as PET from date of cessation — taper applies in the normal way. |
IHT on gifts UK 2026. PET: s3A IHTA 1984 — individual to individual; 7yr survival; taper s7(4) years 3-7. CLT: ss2,3,7 IHTA — gift to discretionary trust; 20% lifetime IHT above NRB; top-up on death within 7yr at 40% less credit. Annual exemption: s19 IHTA — £3k/yr per donor; s19(2) one year carry-forward only = max £6k. Small gifts: s20 IHTA — £250 per recipient per year; cannot combine with annual exemption for same recipient. Wedding gifts: s22 IHTA — £5k parent; £2.5k grandparent/remoter ancestor/one party to other; £1k anyone else; on/before wedding day; conditional on marriage. Normal expenditure from income: s21 IHTA — uncapped; surplus income; established pattern; no standard-of-living reduction; HMRC IHTM14231. Maintenance of family: s11 IHTA — spouse/CP; minor children; education/training; dependent relative. Spousal/CP: s18 IHTA — unlimited. Charity: s23 IHTA — unlimited. GWR: s102 FA1986 — reservation continues → asset stays in estate; not a PET; no 7yr clock; reservation ceases → PET from date of cessation. POAT: FA2004 Sch 15 — income tax on notional rent if GWR circumvented by paying market rent. 14-year rule: CLTs within 7yr before a PET use up NRB available against that PET on death; CLTs up to 14yr before death can affect NRB. IHT100: CLTs exceeding NRB — file within 12 months. IHT403: 7yr gifts — submitted by executor on IHT400. NRB 2026: £325k (frozen to 2030 — s8C IHTA); RNRB: £175k (s8D); tNRB: s8A IHTA (IHT402 — not automatic); tRNRB: s8G IHTA (IHT436 — not automatic).
IHT on Gifts: Complete Guide
The 7-year rule for gifts and inheritance tax — how it works in practice
The '7-year rule' for IHT is based on the Potentially Exempt Transfer (PET) regime under s3A IHTA 1984. A PET is a gift from one individual to another individual (or a bare trust) — the gift is immediately IHT-exempt at the moment it is made, but it remains 'potentially' exempt because the exemption is only confirmed if the donor survives 7 years. If the donor dies within 7 years: the PET is drawn back into the estate for IHT purposes (s3A(4) IHTA). Its value is included in the cumulation of gifts made in the 7 years before death, which determines how much NRB (£325,000) is available for the estate. Any PET value that exceeds the remaining NRB is charged to IHT at 40% (or the 36% charitable rate if applicable). Taper relief (s7(4) IHTA) reduces the IHT rate on the PET itself if the donor survived more than 3 years from the gift: year 3-4: 80% of the full rate; year 4-5: 60%; year 5-6: 40%; year 6-7: 20%. But taper only helps with the IHT on the PET — it does NOT remove the PET from the 7-year cumulation for NRB purposes. Practical example: donor gives £500,000 to their child and dies 4 years later. The PET is £500,000. The NRB is £325,000. The excess is £175,000. Full IHT would be £175,000 × 40% = £70,000. Taper at year 4 = 60% of the full rate = £70,000 × 60% = £42,000. Taper saves £28,000. The timing of a gift is therefore critical — gifts made in year 4 rather than year 6 cost significantly more IHT on the donor's death.
Gifts that are always IHT-exempt — no 7-year clock needed
Several categories of gifts are immediately and permanently exempt from IHT — no 7-year survival period; no PET risk; the gift simply leaves the estate the moment it is made. The most important are: (1) Annual exemption (s19 IHTA — £3,000 per donor per tax year; carry-forward of one prior unused year giving maximum £6,000 per donor in one year). (2) Small gifts exemption (s20 IHTA — up to £250 per recipient per donor per year; unlimited total recipients; cannot be combined with annual exemption for same recipient). (3) Wedding gifts (s22 IHTA — £5,000 from each parent; £2,500 from each grandparent or one party to the other; £1,000 from any other person; must be given on/before the wedding and conditional on the marriage proceeding). (4) Normal expenditure from income (s21 IHTA — uncapped; from surplus income; established regular pattern; no reduction to standard of living — the most powerful immediately-exempt exemption for wealthy individuals who have more income than they need). (5) Gifts to spouse or civil partner (s18 IHTA — unlimited; immediate; no restrictions while both spouses are UK domiciled or at least one is). (6) Gifts to charities (s23 IHTA — unlimited; immediate; any qualifying UK charity). (7) Maintenance of family (s11 IHTA — maintenance of spouse or CP; reasonable maintenance of minor children; education or training of children up to age 25; maintenance of dependent relatives). Strategic use of these exemptions: for wealthy individuals making regular gifts, the combination of annual exemption + normal expenditure from income can generate very large immediately-exempt transfers. A couple with surplus income of £80,000 per year, each giving £40,000 (after maintaining their standard of living), can transfer £80,000 per year with no IHT risk of any kind — no 7-year clock, no PET, no limit.
Gifts to trusts — Chargeable Lifetime Transfers and the immediate 20% charge
Not all gifts are PETs. Gifts to DISCRETIONARY trusts are Chargeable Lifetime Transfers (CLTs) — they are chargeable to IHT at the time of the gift (not merely potentially exempt). The lifetime IHT rate is 20% (or 25% if the settlor pays the IHT, so that the amount after IHT equals the intended transfer — a 'grossed-up' rate). CLTs are charged at 20% on the amount above the NRB at the date of the gift. Cumulation: the NRB available against a CLT is reduced by any CLTs made in the 7 years before that CLT (and by any PETs that subsequently proved chargeable, though PETs are only drawn back if the donor dies within 7 years). Example: settlor with no prior CLTs settles £425,000 into a discretionary trust. NRB at that date: £325,000. Amount above NRB: £100,000. IHT at 20%: £20,000 payable immediately if the trust pays it (or £25,000 if the settlor pays it on a grossed-up basis). If the settlor dies within 7 years of the CLT: further top-up IHT may be charged at 40% on death, less 20% already paid (taper applies in the normal way). HMRC form IHT100 must be filed if the CLT exceeds the NRB in the relevant 7-year period. Gifts to bare trusts are PETs (the beneficiaries have absolute entitlement — it is treated as a direct gift). Gifts to interest-in-possession trusts (post-22 March 2006 rules — most such trusts are now relevant property trusts) are generally CLTs. Immediate post-death interest (IPDI — s49A IHTA): created on death by will — not a lifetime transfer; outside the CLT/PET framework.
Gift with reservation of benefit — the trap that keeps gifts in your estate
A Gift with Reservation of Benefit (GWR — s102 Finance Act 1986) is one of the most significant IHT traps. If a donor makes a gift but continues to benefit from the gifted property — even after making the gift — the gift is treated as if it was never made for IHT purposes: the asset remains in the donor's estate for IHT on death. The classic GWR: a parent gives their house to their adult child but continues to live in the house rent-free. Despite the gift having been made (the child is the legal owner), the house remains in the parent's IHT estate because the parent has reserved a benefit (the right to live there). The house is valued at its full value at the date of the parent's death. A GWR is NOT a PET — no 7-year clock runs while the reservation continues. To escape a GWR while retaining the use of the property: pay full market rent (or commercial rent in an arm's-length transaction). If the parent pays market rent to the child, the reservation ceases — from the date the reservation ceases, the gift becomes a PET and the 7-year clock starts. But: Pre-Owned Assets Tax (POAT — Finance Act 2004 Schedule 15): if the reservation ceases and the donor still occupies the property, POAT charges income tax on the notional rent that the donor would pay for the use of the property. GWR rules also apply to: gifts of investments where the donor retains the income; gifts of business assets where the donor continues to run the business as if it were their own; gifts to family trusts where the donor or spouse can benefit. The interaction of GWR and POAT means that giving away your home while continuing to live in it is an extremely expensive strategy — seek specialist advice before attempting it.
The 14-year rule — how old CLTs affect the NRB on death
The '14-year rule' (sometimes called the 14-year shadow or the double-running period) arises from the interaction of CLTs and PETs in the 7-year period before death. When calculating the IHT on a PET that has become chargeable (because the donor died within 7 years), the NRB available against that PET is reduced not just by OTHER PETs in the 7 years before death — but also by CLTs made in the 7 years BEFORE that PET. Since a PET can have been made up to 7 years before death, and CLTs in the 7 years before that PET can eat up the NRB, CLTs made up to 14 years before the death can still affect the IHT on the estate. Example: in year 0, the donor makes a CLT of £300,000 (no prior gifts; NRB £325k — below NRB, no immediate IHT). In year 6, the donor makes a PET of £200,000. In year 11, the donor dies. On death: the PET in year 6 is within 7 years of death → it becomes chargeable. NRB available against the PET: reduced by the CLT in year 0 (which is within 7 years of the PET in year 6). NRB remaining for the PET: £325,000 - £300,000 = £25,000. The excess of the PET above the remaining NRB: £200,000 - £25,000 = £175,000. IHT on the excess: £175,000 × 40% × 20% (taper at year 11 - year 6 = year 5) = £14,000. Without the CLT in year 0: full NRB available = £200,000 - £325,000 = nil above NRB = no IHT. The 14-year rule is often missed — CLTs outside the 7-year period before death can still have a shadow effect through the 14-year cumulation chain.
Frequently Asked Questions
How much can you give away without paying inheritance tax in the UK?
Several categories of gifts are entirely free of IHT with no 7-year clock: (1) Annual exemption (s19 IHTA): £3,000 per donor per year; carry-forward of prior year if unused (max £6,000 in one year). This is per donor — a couple can each give £3,000 = £6,000 per year combined. (2) Small gifts (s20 IHTA): £250 per recipient per donor per year (unlimited recipients). (3) Wedding gifts (s22 IHTA): £5,000 per parent; £2,500 per grandparent. (4) Normal expenditure from income (s21 IHTA): UNCAPPED — if gifts are from surplus income as part of a regular established pattern and your standard of living is unaffected. (5) Gifts to spouse/CP (s18): unlimited. (6) Gifts to charity (s23): unlimited. Beyond these exemptions, ANY gift to an individual is a PET (s3A IHTA) — IHT-free only if you survive 7 years. The 7-year rule means there is no fixed amount you 'can give away' beyond the exempt categories — you can give any amount as a PET, but the IHT saving depends entirely on how long you survive.
What is the 7-year rule for inheritance tax on gifts?
The 7-year rule means that a gift from one person to another (a PET — Potentially Exempt Transfer, s3A IHTA 1984) is free of IHT only if the donor survives 7 complete years from the date of the gift. If the donor dies within 7 years: the gift is drawn back into the estate (s3A(4) IHTA) and included in the 7-year cumulation used to calculate IHT on the estate. Taper relief (s7(4) IHTA) reduces the IHT rate on the gift itself if the donor survived more than 3 years: year 3-4 from gift: 80% of full rate; year 4-5: 60%; year 5-6: 40%; year 6-7: 20%; year 0-3: no taper (full rate). Note: taper only reduces the tax on the gift — it does NOT remove the gift from the 7-year NRB cumulation. The practical implication: the best time to start making gifts is as early as possible — a gift made 7 years before death costs no IHT; a gift made 1 year before death costs the full 40% rate on any amount above the available NRB.
What counts as a gift for inheritance tax purposes?
For IHT purposes, a gift includes: any transfer of cash; transfer of investments or shares; transfer of property (house, land); adding someone's name to a bank account or property (if without payment); selling an asset at below market value (the discount is a gift of the difference — s3(1) IHTA); giving up a legal right (e.g., writing off a loan you are owed — the debt forgiven is a gift of that amount). A gift for IHT is based on the 'loss to the estate' principle (s3(1) IHTA) — the value of the gift is the reduction in the donor's estate, not the increase in the recipient's estate (these differ for minority share interests, for example). Regular gifts of income that meet the s21 IHTA criteria (normal expenditure from income — established pattern, from surplus income, no reduction to standard of living) are immediately exempt. A gift with reservation of benefit (GWR — s102 FA1986) — where the donor retains a benefit in the gifted asset — is NOT a gift for IHT; the asset stays in the estate.
Is a gift from parents subject to inheritance tax?
A gift from a parent to a child is a PET (Potentially Exempt Transfer — s3A IHTA 1984) — there is no IHT at the time of the gift, regardless of the amount. The gift is IHT-free permanently if the parent survives 7 years. If the parent dies within 7 years: the gift is drawn back into the parent's estate, and IHT is charged if the cumulative gifts and estate value exceed the NRB (£325,000). The parent's annual exemption (s19 IHTA — £3,000 per year) covers the first £3,000 of gifts per year without any 7-year clock. Wedding gifts from parents (s22 IHTA — £5,000 per parent) are also immediately exempt. Normal expenditure from income (s21 IHTA): regular gifts from a parent's surplus income (e.g., helping with rent, school fees, regular transfers) are immediately exempt with no 7-year clock if they form an established pattern and don't reduce the parent's standard of living. The parent must NOT retain any benefit in the gifted asset (GWR trap — s102 FA1986).
Do I need to tell HMRC about gifts I've received?
The RECIPIENT of a gift does not need to report it to HMRC for IHT during the donor's lifetime. After the donor's death: the executor (personal representative) must disclose all gifts made by the deceased in the 7 years before death on form IHT403 (submitted with IHT400). The executor must account for all PETs and CLTs in the 7-year period before death, regardless of whether HMRC was notified when the gifts were made. Practically: keep records of all significant gifts made — date, amount, recipient, and any exemptions relied upon — so that executors can account for them. For CLTs (gifts to discretionary trusts) exceeding the NRB: HMRC form IHT100 must be filed when the gift is made (within 12 months of the end of the month in which the CLT was made). For annual exemption gifts (s19 IHTA) and other immediately exempt gifts: no HMRC reporting required. No income tax on received gifts for the recipient (gifts are capital for UK income tax purposes).
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