Question 1

What is the 7-year rule for inheritance tax?

Accepted Answer

If you give away assets and survive for 7 years from the date of the gift, it becomes completely exempt from IHT — a "potentially exempt transfer" that succeeds. If you die within 7 years, the gift may be charged to IHT, but taper relief reduces the rate for gifts made 3–7 years before death.

Question 2

What is taper relief on IHT gifts?

Accepted Answer

Taper relief reduces the IHT rate on gifts made 3–7 years before death. The rate falls from 40% (0–3 years) to 32% (3–4 years), 24% (4–5 years), 16% (5–6 years), and 8% (6–7 years), before becoming 0% at 7 years. Crucially, taper relief only applies to the amount of the gift that exceeds the nil-rate band.

Question 3

Does the £3,000 annual exemption reduce the 7-year clock?

Accepted Answer

Yes — the first £3,000 of gifts in a tax year is immediately exempt from IHT under the annual exemption. It does not count as a potentially exempt transfer, so no 7-year clock applies to it. If you did not use the previous year's exemption, you can carry it forward for one year, giving a maximum of £6,000.

Question 4

What if the gift is within the nil-rate band?

Accepted Answer

If the cumulative total of gifts in the 7 years before death is within the nil-rate band (£325,000), no IHT is due on the gifts. However, they do reduce the nil-rate band available for the estate, potentially increasing IHT on the remaining estate.

Question 5

What gifts are always exempt from IHT regardless of the 7-year rule?

Accepted Answer

Several categories of gift are immediately exempt with no 7-year clock: the annual £3,000 exemption (carry forward one year for a maximum of £6,000), small gifts of up to £250 per person per year to any number of people, wedding gifts up to £5,000 (parents), £2,500 (grandparents), or £1,000 (anyone else), regular gifts out of surplus income that do not reduce your standard of living, and gifts between spouses or civil partners. Gifts to charities, political parties, and certain national institutions are also exempt.

Question 6

How do regular gifts out of income work for IHT?

Accepted Answer

Gifts made as part of a "normal expenditure out of income" pattern are immediately exempt from IHT, however large they are, provided three conditions are met: the gifts must form part of your normal (habitual) expenditure, they must come from income (not capital), and they must leave you with enough income to maintain your usual standard of living. Paying a child's rent or making monthly transfers to a grandchild are common examples. Proper records are important, as executors need to demonstrate the pattern to HMRC.

Question 7

Are cash gifts different from gifts of property for IHT?

Accepted Answer

The 7-year rule applies to both cash and non-cash gifts. However, gifts of property or shares may also trigger Capital Gains Tax (CGT) at the time of the gift, as HMRC treats a gift as a disposal at market value. This creates two potential tax liabilities: CGT now (at up to 24% on property gains or 18–24% on shares) and IHT if the donor dies within 7 years. Careful planning can mitigate both, but specialist advice is usually worthwhile for significant gifts of non-cash assets.

Question 8

How much can I give my children free of IHT?

Accepted Answer

Gifts to your children are potentially exempt transfers (PETs) — they become IHT-free if you survive 7 years. In addition, you can give up to £3,000 per year as the annual exemption (immediately IHT-free), carry forward one unused year for £6,000, give up to £5,000 as a wedding gift when a child marries, and make regular gifts from surplus income with no limit under the normal expenditure exemption.

Question 9

How much can I give my grandchildren tax-free?

Accepted Answer

The same annual exemption of £3,000 per year applies to gifts to grandchildren (shared across all recipients, not per grandchild). Wedding gifts to grandchildren are exempt up to £2,500. Larger gifts start the 7-year clock but become fully IHT-free if you survive. There is no separate grandchildren allowance — the standard PET and exemption rules apply.

Question 10

Can my spouse and I both make gifts to reduce our IHT?

Accepted Answer

Yes — each spouse has their own annual exemption of £3,000 per year, giving a couple £6,000 per year of immediately exempt gifts combined (up to £12,000 if both carry forward one unused year). Each also has their own nil-rate band of £325,000 for PETs, so a couple can make £650,000 of gifts before taper relief becomes relevant. Gifts between spouses themselves are unlimited and IHT-free.

IHT Gifts & 7-Year Rule Calculator UK 2026 — Taper Relief on Lifetime Gifts