A gift to another person is free of Inheritance Tax if the giver lives 7 years after making it, and the law treats a death on the 7th anniversary as outside the 7 years (Inheritance Tax Act 1984, s.3A(4)-(5)); if the giver dies sooner, the gift uses up the £325,000 nil-rate band before the estate does, and the part above the band is taxed at 40%, reduced by taper relief when the gift was made 3 to 7 years before the death.
The rule is simple to state and easy to get wrong in practice: on which date does a gift leave the 7 years, what does taper relief actually reduce, and who pays? This guide answers with dates and worked figures. The rules are the same across the whole UK. To test your own gifts against a date of death, use the calculator.
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The 7-year rule in the law
A gift from one person to another is a "potentially exempt transfer" (s.3A(1A)). It becomes exempt if it was made "seven years or more before the death of the transferor" (s.3A(4)), and it is presumed exempt during the period "ending immediately before" its seventh anniversary (s.3A(5)). So a death on the 7th anniversary of the gift leaves it exempt: that is written in the Act, not a matter of HMRC practice.
If the giver dies within the 7 years, the gift becomes chargeable. The figures used below are the nil-rate band of £325,000 and the rate of 40% above it (Sch. 1). The nil-rate band is frozen at £325,000 up to and including the 2030-31 tax year, that is until 5 April 2031 (Finance Act 2021 s.86, as amended by Finance Act 2026 s.72).
Gifts use the nil-rate band before the estate
The tax on a gift is worked out on that gift plus the chargeable gifts made in the 7 years before it (s.7(1)). In practice, gifts made in the 7 years before death take the nil-rate band first, in date order, and the estate only gets what is left. The £175,000 residence nil-rate band does not help here: it applies only to the tax on the estate at death (s.8D(1)). A late spouse's unused nil-rate band, on the other hand, does reduce the tax due on gifts, because it increases the nil-rate band at the second death (IHTM43034).
- A parent gives £350,000 to their child on 1 June 2025 and dies on 1 October 2026, leaving an estate of £500,000 with no home left to direct descendants, so no residence nil-rate band. The annual exemption of 2025-26 takes £3,000 (the 2024-25 exemption having been used), so £347,000 counts. It uses the whole £325,000 band: (£347,000 − £325,000) × 40% = £8,800, paid by the child. The estate has no band left: £500,000 × 40% = £200,000.
Taper relief cuts the tax, not the gift
When a gift was made more than 3 years before the death, the tax on it is charged at a percentage of the full rate (s.7(4)):
| Gift made before the death | Percentage of the full rate | Effective rate |
|---|---|---|
| 3 years or less | 100% | 40% |
| More than 3, up to 4 years | 80% | 32% |
| More than 4, up to 5 years | 60% | 24% |
| More than 5, up to 6 years | 40% | 16% |
| More than 6, up to 7 years | 20% | 8% |
| 7 years or more | Exempt | 0% |
Two consequences are often missed. First, taper relief only matters if there is tax on the gift, which means only for the part of the gifts above the nil-rate band: a £200,000 gift made 5 years before death, with no other gifts, pays nothing with or without taper relief. Second, the relief reduces the tax, not the value of the gift: a gift made 6 years before death still uses its full value of nil-rate band, and the estate loses that band just the same.
- HMRC's own example (IHTM14612): Julia gives £375,000 on 1 February 2009 and dies on 20 June 2012; like the manual, take her annual exemptions as already used, so the whole £375,000 counts. £50,000 is above the band; the full tax is 40% × £50,000 = £20,000; the gift is within 3 to 4 years of the death, so the tax is £20,000 × 80% = £16,000.
The dates that matter
Take a gift made on 11 April 2022. The rate of tax on the part above the nil-rate band depends on the date of death:
| Date of death | Rate on the gift |
|---|---|
| Up to 10 April 2025 | 40% |
| 11 April 2025 to 10 April 2026 | 32% |
| 11 April 2026 to 10 April 2027 | 24% |
| 11 April 2027 to 10 April 2028 | 16% |
| 11 April 2028 to 10 April 2029 | 8% |
| From 11 April 2029 | Exempt |
A death on an anniversary. The table puts a death on the 3rd, 4th, 5th or 6th anniversary in the next band. That is HMRC's practice: "If the death occurs on an anniversary of the making of the transfer, treat it as having been made in the next year" (IHTM14613, whose example puts a death on 7 April 2012, for a gift on 7 April 2007, in year 5-6). It is a reading of the Act, not its words: taken literally, "not more than four years" in s.7(4) would keep a death on the 4th anniversary in the 3-4 year band. For the 7th anniversary there is no such question, since s.3A exempts the gift, as explained above.