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Gifts made more than 7 years before death are inheritance tax-free. Gifts within 7 years are taxable if the estate exceeds £325,000. Taper relief reduces tax on gifts made 3-7 years before death (40% down to 8%). Always exempt: spouse transfers, charity gifts, £3,000 annual allowance.
When someone dies, gifts they made in the 7 years before death may be subject to inheritance tax. This guide explains the rules executors and families need to understand, and what a Budget can and cannot change.
Average reading time: 10 minutes
The Budget on 28 October 2026
The next Budget is on Wednesday 28 October 2026. Nothing about gifts or the seven-year rule has been announced for it. The same ideas were predicted before the Budgets of October 2024 and November 2025, and neither Budget changed the rule. Until the government publishes something, the rules below are the rules.
The 7-year rule applies to "potentially exempt transfers" (PETs) - gifts that become exempt from inheritance tax if the person who made them survives for 7 years.
The gift becomes fully exempt from inheritance tax. It doesn't count towards the estate value and the recipient keeps the full amount.
The gift is added back to the estate for inheritance tax purposes. Tax may be due depending on:
Taper relief has two conditions, and both must be met. Form IHT403 states them: taper relief “is only available on the tax on gifts that both” have “a combined value that is more than the Inheritance Tax nil rate band available for the estate” and “are made between 3 and 7 years before the date of death”. GOV.UK says the same thing more bluntly: “Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.”
This is where most explanations go wrong. Gifts are set against the nil-rate band first, in the order they were made. If they all fit inside the band there is no tax on any of them, and so nothing for taper relief to reduce. The rates below apply only to the part of a gift that sits above the available nil-rate band:
| Years Between Gift and Death | Tax Rate Reduction | Effective IHT Rate |
|---|---|---|
| 0 to 3 years | No reduction | 40% |
| 3 to 4 years | 20% reduction | 32% |
| 4 to 5 years | 40% reduction | 24% |
| 5 to 6 years | 60% reduction | 16% |
| 6 to 7 years | 80% reduction | 8% |
| More than 7 years | Fully exempt | 0% |
Important: Taper Relief Only Reduces Tax, Not the Gift Value
Taper relief reduces the rate of tax charged on a gift, not the value of the gift itself. The full gift value still counts when calculating whether the estate exceeds the nil-rate band. And you do not work it out yourself — IHT403 says “Do not deduct Taper Relief on this form… If tax is due on the gifts HMRC will send you separate calculations and include any Taper Relief due.”
Want to estimate where the estate sits against the £325,000 nil-rate band? Use our free inheritance tax calculator. Note: it works on the gross estate at death and does not yet account for taper relief on lifetime gifts.
Some gifts are completely exempt from inheritance tax, regardless of when they were made:
Gifts to a spouse or civil partner are always exempt, with no limit on value. The recipient must be UK-domiciled, or the exemption is limited to £325,000.
Gifts to UK-registered charities and qualifying political parties are fully exempt.
Each person can give away up to £3,000 per tax year without it counting towards IHT. Unused allowance from the previous year can be carried forward (maximum £6,000 in one year).
Gifts of up to £250 per recipient per year are exempt. You can give to as many people as you like, but not to anyone who has already received part of your £3,000 annual exemption.
Gifts made from surplus income (not capital) are exempt if they form part of a regular pattern and don't affect the giver's standard of living. This is one of the most valuable exemptions but requires good record-keeping to prove.
Payments for the maintenance of a spouse, ex-spouse, dependent relative, or child in full-time education are exempt.
As an executor, you must identify all gifts made by the deceased in the 7 years before death. This can be challenging:
If the deceased continued to benefit from a gift (e.g., gave away their house but continued living there rent-free), it's treated as still being part of their estate. The 7-year rule doesn't apply to these "gifts with reservation of benefit".
Scenario: Sarah died in November 2026. She made the following gifts, and no annual exemptions were available:
Calculation. The gifts are set against the nil-rate band in the order they were made, and the estate takes whatever is left:
Change one figure and taper relief disappears entirely. If the March 2021 gift had been £250,000 rather than £400,000, the gifts would total £300,000 — inside the nil-rate band. There would be no tax on either gift, so no taper relief on either, and the whole remaining £25,000 of band would go to the estate.
Who Pays the Tax on Gifts?
IHT403 puts it plainly: “If Inheritance Tax is due on any of the gifts, the people who received them are liable to pay the tax due on them. This is separate from the Inheritance Tax that may be due on the estate. A year after the date of death, the executors or administrators of the deceased's estate become jointly liable for the tax on the gifts.” That 12-month point matters for executors deciding when to distribute.
Before each of the last two Budgets — October 2024 and November 2025 — there was widespread speculation that the seven-year period would be lengthened, that a lifetime cap on tax-free gifts would be introduced, or that taper relief would be removed. Neither Budget did any of these things: the November 2025 Budget left the seven-year rule and taper relief as they were.
The same ideas are circulating again before the Budget on 28 October 2026. They remain speculation until the government announces them.
For an executor, one point matters more than any rumour: inheritance tax is worked out under the rules in force at the date of death, and a new measure normally starts on a date set in its legislation. Gifts made by someone who has already died are assessed under the rules that applied when they died, unless legislation expressly says otherwise. See what the Autumn Budget 2026 could mean for bereaved families.
Understanding the 7-year rule is essential for executors dealing with an estate. If the deceased made significant gifts, consider seeking professional advice to ensure correct reporting and tax calculation.