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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, plus potential changes that could be announced in the November 2025 Budget.
Average reading time: 10 minutes
There is speculation that the November 2026 Budget could extend the 7-year rule to 10 years, introduce a lifetime cap on tax-free gifts, or remove taper relief. Nothing is confirmed until the Chancellor announces the Budget on 26 November. We'll update this guide with any changes.
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% |
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.
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.
There has been significant speculation about potential changes to gifting rules in the November 2025 Budget. None of these are confirmed:
The 7-year period could be extended to 10 years. This would mean gifts must be made a decade before death to become fully exempt. Impact: More gifts would be caught by IHT, particularly affecting older people who made gifts thinking they were safe after 7 years.
A new limit on the total amount that can be given away tax-free during a lifetime (rumoured at £50,000-£100,000). This would fundamentally change how inheritance tax works, moving from a time-based system to an amount-based cap.
Taper relief could be removed, meaning any gift within the qualifying period (7 or 10 years) would be taxed at the full 40% rate. This would create a harsh "cliff edge" rather than the gradual reduction under current rules.
Before the October 2024 Budget, there was widespread speculation about extending the 7-year rule and introducing gift caps. None of these changes were announced. Budget rumours should be treated with caution.
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.