The 7-Year Rule for Inheritance Tax UK (2026): Gifts, Taper Relief & Exemptions
Quick answer
If you make a gift and survive 7 years, it falls outside your estate and is exempt from inheritance tax. Die within 7 years and the gift may be taxed — but taper relief reduces the rate after year 3. The annual gift exemption (£3,000/year) is free immediately. The 2026 Autumn Budget froze thresholds to 2031 and removed pension IHT protection from April 2027, making lifetime gifting more valuable than ever.
What is the 7-year rule?
The 7-year rule is a core feature of UK inheritance tax. Under the Inheritance Tax Act 1984, gifts made to individuals (and certain trusts) become exempt from IHT if you — the donor — survive for 7 years after making them. These gifts are called potentially exempt transfers (PETs).
If you die within 7 years, HMRC looks back through your gift history. Any PETs made in the 7 years before death are added back into your estate and taxed to the extent they exceed your nil-rate band (£325,000 in 2026/27).
Taper relief: the sliding rate table
If you die between 3 and 7 years after making a gift, taper relief reduces the inheritance tax rate payable on that gift. It does not reduce the value of the gift — only the tax rate.
| Years between gift and death | IHT rate on gift | Reduction |
|---|---|---|
| Less than 3 years | 40% | 0% |
| 3–4 years | 32% | 20% |
| 4–5 years | 24% | 40% |
| 5–6 years | 16% | 60% |
| 6–7 years | 8% | 80% |
| More than 7 years | 0% | 100% — fully exempt |
Taper relief only applies where the gift exceeds the available nil-rate band at death. If the cumulative total of gifts in 7 years is below £325,000, no IHT is due regardless of taper relief.
Gifts exempt from the 7-year rule immediately
Not all gifts are PETs. Several categories are fully exempt and do not use the nil-rate band or require survival for 7 years:
| Exemption | Limit | Notes |
|---|---|---|
| Annual exemption | £3,000/year | Carry forward 1 year if unused — max £6,000 |
| Small gifts | £250/person/year | To any number of people; cannot combine with annual exemption for same recipient |
| Wedding / civil partnership gift | £5,000 (parent); £2,500 (grandparent/party to marriage); £1,000 (anyone) | Must be made on or shortly before the marriage |
| Gifts out of normal income | Unlimited | Must be regular, from income (not capital), and not reduce standard of living |
| Gifts to spouse/civil partner | Unlimited (if UK domiciled) | Fully exempt between married couples and civil partners |
| Gifts to charity / political parties | Unlimited | Qualifying UK charities and registered parties only |
PETs vs chargeable lifetime transfers (CLTs)
Most gifts to individuals are PETs and have no immediate IHT consequence. But gifts into most discretionary trusts are chargeable lifetime transfers — they face an immediate 20% IHT charge on the amount above the nil-rate band at the time of the gift.
Bare trusts and absolute gifts are treated as PETs. If you are using trusts for estate planning, take specialist advice on the type of trust to avoid an unexpected immediate charge.
Gift with reservation of benefit
A common trap: you give away your home to your children but continue living there rent-free. Under the gift with reservation of benefit rules (Finance Act 1986), the property remains in your estate regardless of how many years pass.
To remove the reservation, you must pay full market rent to your children. At that point the 7-year clock starts. Failing to pay rent means the property is in your estate on death — and your children face both IHT on the estate and (usually) capital gains tax on any gain since the gift date.
The 2026 changes that make gifting more valuable
NRB frozen to 2031
The nil-rate band stays at £325,000 and the residence NRB at £175,000 until April 2031. With house prices rising, more estates will be dragged into IHT — making lifetime gifting more important.
Pension IHT from April 2027
From April 2027, unused defined contribution pensions will be included in taxable estates. Previously pensions sat outside the estate entirely. This changes the planning calculus for those with large pension pots.
BPR/APR cap from April 2026
Business Property Relief and Agricultural Property Relief now give 100% exemption only on the first £2.5m of qualifying assets combined. Above that, only 50% relief applies — a major change for family farms and business owners.
Practical gifting checklist before April 2027
- Use your £3,000 annual exemption every year — and carry forward last year's if unused.
- Document gifts out of income — keep a spreadsheet of regular payments showing they come from income, not capital.
- Review your pension nominations — from April 2027, large DC pension pots inside your estate face 40% IHT. Consider whether to draw down and gift, or whether the pension wrapper still makes sense.
- Check joint ownership of property — if you hold property as joint tenants, the survivor inherits automatically. If you hold as tenants in common, your share passes via your will. Make sure your will reflects your intentions.
- Update your will to reflect any gifts made — a will written before a major gifting strategy may not account for changed asset values and could leave beneficiaries surprised.
Does your will need updating?
A gifting strategy only works alongside an up-to-date will. If you gift assets over time without updating your will, your residuary estate (what is left after specific gifts) may be significantly smaller than your executors expect — creating family disputes.
Review your will whenever you make a significant gift, especially property transfers. The WillSafe UK Single Will Kit (£39.99) or Essentials Bundle (£89.99) includes a plain-English template and guidance notes for updating your will without a solicitor.
Frequently asked questions
What is the 7-year rule for inheritance tax in the UK?▼
If you make a gift and survive for 7 years after making it, the gift falls outside your estate and is exempt from inheritance tax. If you die within 7 years, the gift may be added back into your estate and taxed — though taper relief reduces the rate between years 3 and 7.
What is taper relief on inheritance tax gifts?▼
Taper relief reduces the inheritance tax rate on gifts made 3–7 years before death. The full 40% rate applies in years 0–3. It reduces to 32% (years 3–4), 24% (years 4–5), 16% (years 5–6), and 8% (years 6–7). After 7 years, no IHT is due. Taper relief reduces the tax, not the value of the gift.
What is the annual gift exemption for inheritance tax in the UK?▼
You can give away up to £3,000 per tax year free of IHT (the annual exemption). If you did not use last year's allowance, you can carry it forward one year — a maximum of £6,000. Separate small gift exemptions allow £250 per person per year to as many individuals as you like, provided they have not received your £3,000 annual exemption.
What is a potentially exempt transfer (PET) for inheritance tax?▼
A PET is any gift to an individual that becomes fully exempt if the donor survives 7 years. Most cash gifts, property transfers, and gifts of assets to family members are PETs. Gifts into most trusts are not PETs — they are chargeable lifetime transfers (CLTs) which may attract a 20% lifetime IHT charge above the nil-rate band.
Do gifts out of normal income count towards the 7-year rule?▼
No. Regular gifts made out of surplus income — not capital — are exempt from inheritance tax immediately under the 'gifts out of income' exemption. The gifts must be regular, come from income (not savings), and must not reduce your standard of living. Documenting these gifts carefully is essential for HMRC to accept the exemption.
How did the 2026 Budget changes affect inheritance tax gifting?▼
The November 2025 Autumn Budget froze the nil-rate band (£325,000) and residence nil-rate band (£175,000) until April 2031. From April 2027, unused pension pots will be included in taxable estates. From April 2026, Business Property Relief and Agricultural Property Relief are capped at a combined £2.5 million at 100% relief — above that, only 50% relief applies. These changes make gifting strategies more valuable.
Does gifting property to children avoid inheritance tax in the UK?▼
Only if you survive 7 years and do not retain a benefit (e.g. continue living in the property). If you give away your home but carry on living there rent-free, the 'gift with reservation of benefit' rules mean the property remains in your estate regardless of how long you live. Paying full market rent removes the reservation.
Is your will up to date with your gifting plans?
A gifting strategy needs an up-to-date will to work. Write or update yours today with a plain-English WillSafe UK will kit — no solicitor appointment needed.
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This article is for general information only and does not constitute tax or legal advice. Inheritance tax rules are complex and depend on individual circumstances. Consult a qualified financial adviser or solicitor for personal advice. WillSafe UK is not a firm of solicitors. Last reviewed 12 May 2026.