The 7 year rule means a gift you make is free of Inheritance Tax if you live for 7 years after giving it. If you die sooner, the gift is counted against your £325,000 nil-rate band. Tax on any part above the band then falls by taper relief once the gift is more than 3 years old.
The rule still applies in 2026/27. Budget 2026 on 28 October 2026 left the 7 year rule, the taper scale and the gift exemptions unchanged. This guide shows the arithmetic on real numbers. For the tax on a whole estate, use the inheritance tax calculator.
How does the 7 year rule work for inheritance tax?
Most gifts to people are free of tax when you make them. They only become taxable if you die within 7 years. HMRC calls these potentially exempt transfers.
When you die, your executor lists every gift from the last 7 years. Those gifts use up your £325,000 nil-rate band first, oldest gift first. Whatever band is left then goes against your estate.
So a gift inside 7 years can cost tax in two ways. It can be taxed itself if your gifts add up to more than £325,000. It can also shrink the band your estate gets, which raises the tax on the estate.
Gifts outside the rule work differently:
- Exempt gifts, such as the £3,000 annual exemption, never count, however soon you die.
- Gifts into most trusts are not covered by the 7 year rule. They can be taxed at 20% when made, the rate for chargeable lifetime transfers.
- Gifts you keep benefiting from are gifts with reservation. They stay in your estate, and the 7 year rule does not apply to them.
Does inheritance tax reduce over 7 years?
Yes, through taper relief. The tax rate on a gift falls the longer you live after making it. The rate drops by 8 percentage points for each full year after the third.
| Years between gift and death | Tax rate on the gift | Tax on each £10,000 above the threshold |
|---|---|---|
| Less than 3 years | 40% | £4,000 |
| 3 to 4 years | 32% | £3,200 |
| 4 to 5 years | 24% | £2,400 |
| 5 to 6 years | 16% | £1,600 |
| 6 to 7 years | 8% | £800 |
| 7 years or more | 0% | £0 |
Two points catch people out. Taper relief cuts the tax on the gift, not the value of the gift. The full value still uses up your nil-rate band.
Taper relief also only helps if your gifts in the 7 years before death add up to more than £325,000. Below that there is no tax on the gift for taper to reduce. The cost lands on the estate instead, at the full 40%.
What happens if I die within 7 years of gifting money?
The answer depends on how big the gifts were. The two worked examples below show each case. Both assume a single person in 2026/27 with no other gifts in the 7 years.
Example 1: a £400,000 gift, death 4 years 6 months later
For example, a mother gives her son £400,000. She has already used her annual exemptions. She dies 4 years and 6 months later, leaving £300,000 of savings.
| Step | Working | Result |
|---|---|---|
| Gift covered by the nil-rate band | first £325,000 | £0 tax |
| Gift above the band | £400,000 minus £325,000 | £75,000 |
| Tax without taper | 40% of £75,000 | £30,000 |
| Tax with taper (4 to 5 years) | 24% of £75,000 | £18,000 |
| Estate, no band left | 40% of £300,000 | £120,000 |
| Total Inheritance Tax | £18,000 plus £120,000 | £138,000 |
Taper relief saves £12,000 here. Her son pays the £18,000, because her gifts went over £325,000. The estate pays the £120,000.
Example 2: a £106,000 gift, death 5 years 3 months later
For example, a father gives his daughter £106,000. He has not used his annual exemption that tax year or the year before. He dies 5 years and 3 months later and leaves a £500,000 estate to his niece.
The two annual exemptions take £6,000 off, so £100,000 counts. That is under £325,000, so there is no tax on the gift. Taper relief has nothing to reduce.
The gift still uses £100,000 of his band, leaving £225,000. His estate is taxed on £500,000 minus £225,000, which is £275,000. At 40% the bill is £110,000.
Had he made the gift 7 or more years before he died, the estate would get the full £325,000. The bill would be 40% of £175,000, which is £70,000. Dying inside the 7 years costs £40,000, which is 40% of the £100,000 gift. A niece is not a direct descendant, so there is no residence nil-rate band in either case.
Who pays the tax on a gift?
The estate normally pays any Inheritance Tax, through the executor. The person who got the gift only pays if you gave away more than £325,000 in the 7 years before death. Then each person given a gift in those 7 years pays the tax on their own gift.
The GOV.UK example shows this. Sally gave £50,000 to her brother 9 years before she died, which was outside the rule. She gave £325,000 to her sister 4 years and 2 months before, which used the whole band. She gave £100,000 to a friend 3 years before her death.
The friend paid 32% on £100,000, which is £32,000. Sally's remaining £400,000 estate had no band left, so it paid £160,000.
Which gifts are exempt from the 7 year rule?
These gifts never count, however soon after them you die:
- Annual exemption: £3,000 of gifts each tax year, to one person or split. Unused exemption carries forward one tax year only, so the most in one year is £6,000.
- Small gifts: up to £250 per person, to as many people as you like. You cannot use another allowance on the same person.
- Wedding or civil partnership gifts: £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else.
- Regular gifts from income: no limit, if you pay from regular monthly income and can still meet your usual living costs.
- Gifts to a spouse or civil partner who lives in the UK permanently, and gifts to charities or political parties.
Most allowances can be combined for one person, except the small gift allowance. For example, a parent can give a child £5,000 as a wedding gift plus £3,000 of annual exemption. With last year's unused £3,000 too, £11,000 leaves the estate that year with no 7 year clock.
Regular payments work the same way. A parent paying a child £60 a month gives £720 a year. That can sit alongside the £3,000 annual exemption in the same tax year.
Does the 7 year rule apply if I give away my house?
Yes, if you move out. There is normally no Inheritance Tax if you leave and live for another 7 years.
If you keep living there, you must pay the new owner rent at the going rate and your share of the bills. Otherwise the house is a gift with reservation. It stays in your estate, and the 7 years never start.
There is one exception. You do not need to pay rent if you give away only part of the home and the new owners also live there.
Giving a house or shares away can also count as a disposal for Capital Gains Tax. The normal rules apply to gifts to anyone other than a spouse, civil partner or charity. See the Capital Gains Tax calculator for the sum on a gain.
What records does the executor need?
Your executor must work out every gift from the 7 years before your death. Keep a note of each one:
- what you gave and who you gave it to
- the value of the gift
- the date you gave it
The date decides the taper band, so a missing date can cost the higher rate. Selling something to family for less than it is worth also counts. The gift is the difference between the price and its market value.
Is the 7 year rule changing?
Budget 2026 did not change the 7 year rule or the exemptions. Its Inheritance Tax changes cover liabilities in trust arrangements, from 28 October 2026, and technical points on pensions.
Two wider changes affect how much your gifts matter:
- The £325,000 nil-rate band and £175,000 residence nil-rate band are fixed to 5 April 2031.
- From 6 April 2027, most unused pension funds and pension death benefits count as part of the estate. A larger estate means gifts that use up the band cost more.
The figures on this page describe the arithmetic only. They are not advice on what to give. For the full rules, read the GOV.UK guide on gifts and Inheritance Tax. More worked sums are in our guides, and the pension calculator covers pension savings.