IHT Planning Over 70 UK: Inheritance Tax Strategies When the 7-Year Rule Is No Longer Viable (2026)
For people in their 70s and 80s, the seven-year survival requirement for gifts makes large PETs an uncertain IHT strategy. The focus shifts to immediate-effect tools: normal expenditure from income (s21 IHTA 1984 — uncapped, no survival needed), AIM shares (BPR after 2 years), whole-of-life insurance in trust, and the pension window before April 2027. A Lasting Power of Attorney is the indispensable prerequisite.
| Strategy | Survival Required? | Time to IHT Effect | Cap / Limit |
|---|---|---|---|
| Normal expenditure from income (s21 IHTA) | None | Immediate | None (must be from surplus income) |
| Annual exemption gifts (s19 IHTA) | None | Immediate | £3,000/yr per donor (+ 1yr carry-forward) |
| Small gifts exemption (s20 IHTA) | None | Immediate | £250/recipient/yr |
| AIM shares — BPR after 2yr (s105(1)(bb)) | None (after 2yr holding) | 2 years | 100% BPR on first £1m (from April 2026); 50% above |
| Whole-of-life trust policy | None | Immediate (funds IHT bill) | Premium levels — underwriting required |
| Charitable legacy 36% rate (s36 IHTA) | None | On death | Minimum 10% net estate to charity |
| PETs (large gifts to individuals) | 7 years for full exemption | 7 years (taper from year 3) | None — but 7yr clock limits reliability over 70 |
IHT Planning Over 70: The Complete Guide
Why the 7-year rule becomes unreliable over 70
A Potentially Exempt Transfer (PET — s3A IHTA 1984) falls out of the IHT estate completely if the donor survives seven years from the date of the gift. In years 3–7, taper relief reduces the IHT charge: year 3–4: 32% rate (20% reduction); year 4–5: 24% (40% reduction); year 5–6: 16% (60% reduction); year 6–7: 8% (80% reduction); after 7 years: nil. For someone aged 70 making a substantial PET, surviving seven years means reaching age 77 — statistically achievable for a healthy 70-year-old. For someone aged 75, surviving seven years means reaching 82. For someone in declining health at any age, the seven-year clock is unreliable. Taper relief does provide some benefit from year 3 — a gift made at age 73 that reduces the IHT charge from 40% to 32% (if death occurs in year 4) is still a meaningful saving. But for the purposes of planning, the emphasis from age 70+ shifts to strategies that provide IHT relief without depending on survival — the normal expenditure from income exemption, annual gifting exemption, and funding strategies (life insurance, AIM shares) that work regardless of how long the donor lives.
Normal expenditure from income (s21 IHTA): the most powerful tool over 70
The normal expenditure from income exemption (s21 IHTA 1984) is the most powerful IHT planning tool for older people with income exceeding their needs. The conditions: (1) Regular gifts — paid monthly, quarterly, or annually (standing order preferred — provides evidence of regularity); (2) From income — not from capital withdrawals; (3) After paying the gifts, the donor retains sufficient income for their normal standard of living. No seven-year clock. No limit on the amount. No limit on the number of recipients. If all three conditions are met, the gifts leave the estate permanently, IHT-free, immediately. Practical sources of surplus income for older people: State Pension (£11,502/yr in 2025–26), defined benefit pension, SIPP/personal pension drawdown, rental income, investment income (dividends, interest). Record-keeping is essential: keep annual summaries of income (from all sources) and outgoings (essential expenses) and gifts (amounts, recipients, dates) — typically in a spreadsheet or letter kept with the will. HMRC will ask for evidence on form IHT403 if the exemption is claimed on death. The s21 exemption also works for premiums on a whole-of-life policy in trust — regular monthly premiums from surplus income can be immediately IHT-exempt.
The annual exemption and small gifts: systematic immediate relief
The annual gifting exemption (s19 IHTA 1984) allows £3,000 per tax year per donor, immediately IHT-exempt, with one year's carry-forward if unused. This is simple, requires no professional advice, and is available regardless of health or age. Over 10 years: £30,000+ removed from the estate. Combined with a spouse's annual exemption (if still married) and carry-forward: potentially £12,000 in a single year. Small gifts exemption (s20 IHTA 1984): unlimited £250 gifts per recipient per tax year — immediate exemption, no seven-year clock. Cannot be combined with the annual exemption for the same recipient. Christmas gifts, birthday gifts, and similar small regular transfers all count. Wedding gifts (s22 IHTA 1984): if children or grandchildren are marrying — £5,000 per child, £2,500 per grandchild, £1,000 for anyone else. Immediate exemption. Strategy over 70: even if large PETs are not viable, systematic use of the annual exemption, small gifts, and normal expenditure from income can significantly reduce the estate over 5–10 years. On an estate of £1,000,000 above the NRB, removing £8,000/year (£3,000 annual exemption + £5,000 normal expenditure from income) over 10 years removes £80,000 from the estate — saving £32,000 in IHT.
AIM shares and BPR after two years: the key investment strategy
AIM-listed shares in qualifying trading companies qualify for Business Property Relief (BPR — s105(1)(bb) IHTA 1984) at 100% after only two years of ownership (subject to the £1,000,000 BPR/APR cap from April 2026; above £1m the relief is 50%). Two years is achievable for most people over 70 — unlike the seven-year survival requirement for PETs. The mechanism: invest in a diversified AIM BPR portfolio; after two years, those shares are outside the IHT estate (for the qualifying portion); on death, the BPR is claimed on the IHT return (form IHT400, schedules IHT413 and IHT418). The AIM shares remain available during life — they can be sold (crystallising CGT) but reinvested in other qualifying AIM shares to maintain the BPR. Important caveats: (1) AIM shares are higher risk than cash or bonds — investment returns are not guaranteed; (2) Not all AIM shares qualify for BPR — investment companies, property companies, and financial companies do not qualify; (3) The £1m cap from April 2026 limits the 100% BPR to £1m combined (BPR + APR); above £1m the effective IHT rate is 20% (50% BPR on 40% IHT). AIM ISA: AIM BPR shares held in an ISA combine income tax and CGT efficiency during life with IHT exemption on qualifying shares after two years.
The pension window before April 2027: critical action before the rule change
Under current rules (IHTA 1984 as it stands), pension funds (SIPPs, personal pensions, SSAS, drawdown funds) are held under a discretionary trust by the scheme trustees and are currently outside the member's IHT estate. Budget 2024 announced that from 6 April 2027, unused pension funds will be brought into the IHT estate. This creates a critical window for people over 70 who have pension funds: options to consider before April 2027: (1) Nominate beneficiaries properly — expressions of wishes/nomination forms should be updated, directing the pension to individuals who will benefit from the funds outside the estate (while still outside IHT before April 2027); (2) Take drawdown to fund lifetime gifts — if you have large pension funds and wish to make substantial gifts, consider drawing from the pension (taxable as income) and gifting the net amount — if the gift is via the s21 normal expenditure from income exemption it may be immediately IHT-exempt; (3) Pension contributions: if still earning income, pension contributions reduce the income estate and the pension fund (currently outside IHT) grows. After April 2027, unused pension funds will be subject to IHT — potentially at 40% above the NRB. The fund will be subject to both IHT and income tax on drawdown by the beneficiary, making pension funds significantly less IHT-efficient after that date.
Lasting Power of Attorney: the planning prerequisite
For any IHT planning to remain viable after a person loses mental capacity, a Lasting Power of Attorney (LPA) for Property & Financial Affairs must already be in place and registered before capacity is lost. Without a registered LPA: (1) Attorneys cannot make gifts from the donor's estate — only 'reasonable seasonal gifts' to relatives; (2) Substantial IHT planning gifts (annual exemption, normal expenditure from income, AIM share investments) may not be possible without a Court of Protection order; (3) The Court of Protection application is expensive, slow, and uncertain. With a registered LPA: attorneys can continue systematic gifting (within the scope of the donor's expressed wishes), maintain investment strategies (AIM BPR portfolios), and pay insurance premiums (whole-of-life trust policies) — continuing the IHT planning even after the donor lacks capacity. The message for planning over 70: make the LPA first, before any planning is needed. An LPA must be made while the donor has mental capacity — if capacity is already in doubt, it may be too late. Setting up the LPA is the single most important prerequisite for flexible, long-term IHT planning.
Whole-of-life insurance in trust: funding the bill without requiring survival
A whole-of-life policy written in trust (see iht-whole-life-insurance-trust-uk) provides a guaranteed payout on death — outside the IHT estate, providing cash to fund the IHT bill. Unlike AIM shares (which require a 2-year holding) or PETs (7-year survival), a whole-of-life policy in trust provides the IHT funding from day one — the policy pays out on death whenever it occurs. For people over 70: premiums are higher (reflecting reduced life expectancy). The premium is the key variable — professional underwriting will assess health conditions. Regular premiums from surplus pension/investment income may qualify as normal expenditure from income (s21 IHTA 1984 — immediately IHT-exempt). Combination strategy: the most powerful over-70 IHT approach combines: (1) AIM shares (2-year BPR — removes significant capital from estate); (2) Whole-of-life trust policy (immediate IHT funding); (3) Normal expenditure from income (ongoing gifting from surplus income — immediate exemption); (4) Annual exemption gifts to children and grandchildren; (5) Charitable 36% residuary legacy; (6) RNRB — will ensures home passes to direct descendants; (7) Pension funds maximised before April 2027.
Frequently Asked Questions
Can you still do IHT planning if you are over 70?
Yes — many strategies work immediately and do not require survival for seven years. The most effective for people over 70: (1) Normal expenditure from income (s21 IHTA 1984) — regular gifts from surplus income are immediately IHT-exempt, no 7-year clock, no cap; (2) Annual exemption (£3,000/yr) — immediately exempt; (3) AIM shares (100% BPR after 2 years — up to £1m from April 2026); (4) Whole-of-life insurance in trust — premiums from surplus income may be s21 exempt; (5) Charitable legacy (36% rate if 10%+ to charity); (6) Pension window — maximise funds before April 2027 IHT rule change. A Lasting Power of Attorney must already be in place for attorneys to continue planning on your behalf after capacity is lost.
Is it worth making large gifts after age 70 for IHT?
Potentially — particularly for people in good health. Even if full seven-year survival is uncertain, taper relief reduces the IHT on gifts surviving 3+ years: year 3–4: 32% rate; year 4–5: 24%; year 5–6: 16%; year 6–7: 8%; after 7 years: nil. A large gift made at age 73 that reduces the IHT charge from 40% to 24% (if death occurs at age 78, in year 5) saves 40% of the taper saving. For people in poor health or with limited life expectancy, focus instead on the immediate-effect strategies: s21 normal expenditure from income, annual exemption, AIM shares (2-year BPR), and whole-of-life trust policy.
What is the best IHT strategy for someone over 75?
For someone aged 75+, the emphasis is on strategies that work immediately or within 2 years: (1) Normal expenditure from income (s21 IHTA 1984) — the most powerful tool; uncapped, immediate; (2) Annual exemption gifts (£3,000/yr); (3) AIM BPR portfolio — qualifying after 2 years of holding; (4) Whole-of-life trust policy funded from surplus income (premiums s21 exempt); (5) Charitable 36% residuary legacy; (6) Pension funds — take advantage of remaining window before April 2027 IHT changes; (7) Ensure will maximises RNRB by leaving home to direct descendants. Establishing a registered LPA is the prerequisite for all ongoing planning.
Can an attorney under an LPA make gifts to reduce IHT?
Yes — with restrictions. Under the Mental Capacity Act 2005, an attorney for Property & Financial Affairs can make gifts that are 'reasonable in the circumstances' — including gifts the donor had a pattern of making (e.g. annual Christmas gifts, regular gifts to grandchildren), and gifts that accord with the donor's expressed wishes in the LPA. Substantial IHT-motivated gifts beyond this pattern require a Court of Protection order (expensive and slow). For this reason, substantial annual gifting and AIM share investments should be made while the donor still has capacity, and the LPA should be put in place early to ensure attorneys can maintain the pattern of gifts after capacity is lost.
How does the April 2027 pension rule change affect IHT planning for over 70s?
Currently, SIPP and personal pension funds are outside the IHT estate. From 6 April 2027 (Budget 2024), unused pension funds will be brought into the IHT estate. For people over 70 with significant pension funds, this means: (1) The pension will no longer be the most IHT-efficient vehicle for passing wealth; (2) The fund may be subject to both IHT (40%) and income tax on withdrawal by the beneficiary — a double tax charge; (3) Drawing down and gifting pension funds before April 2027 (if within s21 normal expenditure from income, or as PETs with as much 7-year run-up as possible) may be beneficial. Review pension nomination forms and overall estate planning before April 2027.
Start With the Right Will — and an LPA
For planning over 70, the will and the Lasting Power of Attorney work together: the will secures the RNRB, the charitable 36% rate, and the right beneficiaries; the LPA ensures attorneys can continue IHT planning on your behalf. WillSafe will kits cover both.
View Will Kits from £39.99