Gifts and the 7 years
The seven year rule: when a gift stops counting for inheritance tax
A gift to a person is free of inheritance tax once the giver has lived seven more years. Die sooner and the gift is brought back into the reckoning, first against the nil-rate band and then, if it is large, with a sliding reduction.
A gift to another person stops counting for inheritance tax when the giver survives it by 7 years. If death comes sooner, the gift is added back and uses the nil-rate band of £325,000 before the estate does, oldest gift first; the residence nil-rate band of £175,000 never covers gifts. Only the part of the gifts above the nil-rate band is taxed, and taper relief then reduces the rate on that part: 40 % for a death within 3 years, 32 %, 24 %, 16 % and 8 % in the fourth to seventh years. The recipient pays that tax. GOV.UK illustrates the rule with Sally, whose estate the engine recomputes: a gift equal to the whole band 4 years before death is tax free but uses the band, a further £100,000 gift 3 years before costs the friend £32,000, and the remaining £400,000 estate, with no band left, pays £160,000. A gift made within the window saves nothing unless the giver lives on.
Tax on a gift if you die within 7 years
Tax on the gift
£18,000
| Above the nil-rate band | £75,000 |
| Rate after taper relief | 24 % |
| Band left for the estate | £0 |
Law read and sums checked by Radif Partners · Editorial policy · How the tax is worked out
A clock that starts on the day of the gift
Most gifts between people are not taxed when they are made. They sit in a kind of suspense: if the giver survives 7 years, the gift drops out of the inheritance tax picture for good; if not, the personal representatives have to bring it back when they value the estate. The clock runs separately for each gift, from the date it was made, so a parent who helps three children at different times has three different dates to watch. Small and regular gifts are taken out first by the exemptions described in the gift allowances guide and the guide to gifts from income; what remains is what the 7 year rule deals with.
When gifts are brought back, they are lined up in date order and set against the nil-rate band of £325,000 oldest first. This is the step people tend to miss. A gift that is well inside the band pays no tax itself, yet it uses up band that would otherwise have sheltered the estate. The residence nil-rate band of up to £175,000 is different: it is only available against a home passing on death to direct descendants, so gifts never touch it, and it is still there for the estate whatever was given away during life.
Taper relief cuts the rate, and only above the band
Where the gifts of the last 7 years add up to more than the nil-rate band, the excess is taxed, and the rate on it depends on how long the giver lived after each gift. GOV.UK sets out the scale. For a death in the first three years there is no reduction. After that the rate steps down each year.
| Time between gift and death | Rate on the part above the band | Tax on £100,000 above the band |
|---|---|---|
| Less than 3 years | 40 % | £40,000 |
| 3 to 4 years | 32 % | £32,000 |
| 4 to 5 years | 24 % | £24,000 |
| 5 to 6 years | 16 % | £16,000 |
| 6 to 7 years | 8 % | £8,000 |
Two things follow from the table. First, taper relief is not a discount on the gift: the full value still counts against the band. Second, it only exists where there is tax to reduce. A family that gives £200,000 and loses the giver five years later gets no relief at all, because the gift was never taxable; it simply shrank the band. The relief matters for large gifts, typically a property or a substantial share of savings, that go past the band on their own or together with earlier ones.
Sally's estate in GOV.UK's example, rerun
GOV.UK's worked example follows a woman called Sally who made three gifts in the nine years before she died. The engine takes the two that fell inside the window and gives the same answers.
| Gift or estate | Timing | Treatment | Tax |
|---|---|---|---|
| £50,000 to her brother | 9 years before death | Outside the window, ignored | £0 |
| £325,000 to her sister | 4 years 2 months before | Uses the whole nil-rate band | £0 |
| £100,000 to a friend | 3 years before | Above the band, rate 32 %, paid by the friend | £32,000 |
| £400,000 estate | At death | No band left, rate 40 % | £160,000 |
The order is what makes the example instructive. The sister's gift was made first, so it takes the band; the friend's gift, made later, finds none left and is taxed on its whole value, with taper relief because it was made three years before death. The estate then pays tax on every pound, £160,000 on £400,000. Had Sally lived another year, the friend's rate would have fallen again, but the estate would have been no better off until the sister's gift passed its own seventh anniversary.
Two gifts, and the year the first one drops out
Because each gift has its own clock, an old gift leaving the window can free band for a newer one. Picture a widow who gave £200,000 to her son and, two years later, £250,000 to her daughter. If she dies six and a half years after the first gift, both are inside the window: the son's gift takes £200,000 of the band, the daughter's finds £125,000 left, and the engine charges £125,000 at 24 %, a bill of £30,000 for the daughter. Had she lived a year longer, the son's gift would have passed its seventh anniversary and dropped out entirely. The daughter's gift, now about five and a half years old, would fit inside the band on its own, so the engine's answer becomes £0. The same year also changes the estate: with less band used by gifts, more is left for the home, the savings and, from 6 April 2027, the pension.
Who pays, and what the estate pays
Tax on a gift above the band is the recipient's bill, not the estate's: in the example, Sally's friend pays £32,000. The estate carries the indirect cost, which is the band the gifts used. Personal representatives have to work out every gift made in the 7 years before death, and GOV.UK asks people to keep a note of what they gave, to whom, its value and when, so that this can be done.
A gift made with strings attached
The 7 year rule assumes the gift really leaves the giver. GOV.UK's standard case of a gift that does not is the family home handed to the children while the parent stays on rent free. For inheritance tax that is a gift with reservation of benefit, and the house is still part of the estate at death however long ago the deeds changed. The same idea applies to other assets the giver keeps using.
Gifts and the pension from April 2027
Section 66 of the Finance Act 2026 brings unused pension funds into the estate for deaths from 6 April 2027. The gift rules do not change, but the stakes do: a pension now competes with the home and savings for the same band, so whatever lifetime gifts have taken from that band leaves more of the pension exposed. Take a single parent who dies at 72, with a £350,000 home left to two children, a £300,000 pension and savings that were either kept or partly given to a daughter.
| Tax on the gift | Tax at death | Of which on the pension | |
|---|---|---|---|
| No gift, savings £350,000 | £0 | £200,000 | £60,000 |
| £200,000 given 4.5 years before death | £0 | £200,000 | £75,000 |
| £200,000 given 8 years before death | £0 | £120,000 | £45,000 |
| £450,000 given 4.5 years before death, £150,000 kept | £30,000 | £250,000 | £93,750 |
The second row is the surprise for many families. The gift within the window costs nothing in gift tax, yet the bill at death is the same £200,000 as if the money had never left, because the band it used is band the estate no longer has. Only once the gift is more than 7 years old does it come off the reckoning, and the saving is then £80,000. The last row is a parent who started with more savings and gave most of them away. That gift goes past the band and adds a bill of £30,000 for the daughter with taper relief already applied.
The calculator above handles a single gift with its earlier ones; the estate calculator adds gifts to a full estate with pension and home. Neither tells anyone what to give. A real case, with several gifts, trusts or a business, is something to take to a solicitor, the personal representatives or a regulated adviser.