If you give a gift and live for 7 years afterwards, there is no Inheritance Tax to pay on it at all. If you die within 7 years, tax may be due, and how much depends on how long you survived after giving it: the first 3 years are taxed in full at 40%, then a sliding scale called taper relief applies from year 3 to year 7. Taper relief only helps once your total gifts in the 7 years before death exceed the £325,000 nil-rate band (2026/27), and it reduces the tax charged, not the value of the gift itself.
What is the 7 year rule?
The 7 year rule is gov.uk's own name for the period during which a lifetime gift can still be pulled back into your estate for Inheritance Tax. Gifts you make more than 7 years before you die fall outside your estate entirely (unless the gift was made into certain trusts). Gifts made within 7 years of death may be taxed, depending on who you gave the money to, how much, and when.
These gifts are sometimes called potentially exempt transfers: exempt if you survive 7 years, potentially taxable if you do not.
What can I give away tax free every year, regardless of the 7 year rule?
Certain gifts fall outside the 7 year rule altogether, because they use a specific allowance.
These figures are confirmed on gov.uk's rules on giving gifts page. Gifts between spouses or civil partners who both live in the UK permanently are exempt without limit and do not use any of these allowances at all.
Normal expenditure out of income is worth understanding properly rather than skipping past. It covers regular payments, such as helping a child with rent or paying into a savings account for a grandchild, made from your surplus income rather than your capital, provided you can still afford your own usual living costs afterwards. There is no upper limit, but you need to be able to show the pattern and the source of funds, which is why keeping records matters.
What happens if a gift is more than these allowances and I die within 7 years?
Once a gift exceeds your available annual exemptions, it becomes a potentially exempt transfer, and the 7 year rule applies to it in full. If you survive 7 years, it is exempt. If you do not, the tax due depends on how many years passed between the gift and your death.
This table is taken directly from gov.uk's gifts guidance, correct as at July 2026.
The nuance most guides get wrong about taper relief
Taper relief does not reduce the value of the gift for Inheritance Tax purposes, and it does not apply just because time has passed. It only applies, and only reduces the rate of tax, where the total value of gifts made in the 7 years before death is more than the £325,000 nil-rate band (2026/27).
If your total lifetime gifts in the 7 years before death are below £325,000, they are covered by the nil-rate band itself, and no tax is due regardless of how long ago they were made, so taper relief never comes into it. Taper relief only starts to matter for the portion of gifts that sits above £325,000, and even then, it reduces the tax charged on that excess, not the amount of the gift.
This is a common source of confusion: people assume a gift made 5 years before death is automatically taxed at a lower rate than one made 1 year before death. That is only true if the gift, combined with other gifts in the 7 years before death, already exceeds the nil-rate band.
Who actually pays the tax on a lifetime gift?
Inheritance Tax on a gift is usually paid by the estate. However, once someone has given away more than £325,000 in gifts in the 7 years before death, anyone who received a gift within that period may become liable to pay the Inheritance Tax on their own gift directly, rather than the estate covering it. This is confirmed in gov.uk's gifts guidance, which sets out exactly this threshold.
Worked example
Example. Consider a parent who made two lifetime gifts and had no other lifetime giving. Four years and 6 months before death, they gave £400,000 to their eldest child. One year before death, they gave £50,000 to their youngest child. Assume no annual exemptions were available to offset either gift (both had already been used elsewhere) and the parent had not remarried, so no spouse exemption applies.
The two gifts total £450,000 in the 7 years before death, which is above the £325,000 nil-rate band, so taper relief is in play for the amount above that threshold.
The nil-rate band is set against gifts in the order they were made, earliest first. The £400,000 gift to the eldest child uses the full £325,000 nil-rate band, leaving £75,000 of that gift chargeable to Inheritance Tax. Because that gift was made 4 years and 6 months before death, it falls in the "4 to 5 years" band, taxed at 24%. Tax due: £75,000 × 24% = £18,000.
The £50,000 gift to the youngest child has no nil-rate band left to use against it, since the whole £325,000 was used by the earlier gift. Because it was made only 1 year before death, it falls in the "0 to 3 years" band, taxed at the full 40%. Tax due: £50,000 × 40% = £20,000.
Total Inheritance Tax on the two gifts: £38,000. Note that the more recent, smaller gift attracts more tax than the larger, older one, because the nil-rate band was already exhausted by the time it was made and no taper applied to it at all.
What this means in practice
If you are considering a large lifetime gift, work out your running total of gifts in the past 7 years before you give it, not just the value of the new gift on its own. The order and timing of gifts against your nil-rate band can matter as much as the amount.
Keeping a simple record of what you gave, to whom, and when is something you can start today; it is also what your executors will need after your death to work out what is owed. We are putting together a gift log template as a coming resource to make this easier.
Whether normal expenditure out of income applies to a particular pattern of giving, and how to sequence larger gifts against your nil-rate band, are questions worth taking advice on before you give rather than after. Our inheritance tax planning page covers the wider picture gifting sits within.
FAQ
Talk to us before you make a large gift
If you are thinking about a significant lifetime gift and want to understand how it interacts with your nil-rate band and the rest of your estate, speak to Chloe Symmonds, Senior Manager. The first conversation is about mapping your gifting history and what you are planning against your full estate picture, not just the gift in isolation. Call 020 8554 2135 or email info@visionconsulting.co.uk, or get in touch via our contact page.
By the Vision Consulting team.
This is general information, not advice. Your position depends on your circumstances.