Inheritance Tax Gift Calculator — 7-Year Rule
Calculate IHT on gifts — taper relief by year and annual exemptions for 2025/26
Last updated: March 2026
IHT Gift & 7-Year Rule Calculator
See the potential IHT on a gift depending on when the donor passes away
Taper Relief Schedule — IHT on Gifts
If the donor dies within 7 years of making a chargeable gift, IHT is due. Taper relief reduces this charge based on how many years have passed.
| Years Between Gift & Death | IHT Rate on Excess | Taper Relief |
|---|---|---|
| 0 – 3 years | 40% | None |
| 3 – 4 years | 32% | 20% reduction |
| 4 – 5 years | 24% | 40% reduction |
| 5 – 6 years | 16% | 60% reduction |
| 6 – 7 years | 8% | 80% reduction |
| 7+ years | 0% | Fully exempt |
UK IHT Gift Exemptions 2025/26
These gifts are immediately exempt from IHT — they do not use the nil rate band and do not start the 7-year clock.
| Exemption Type | Annual Limit | Notes |
|---|---|---|
| Annual exemption | £3,000 | Can carry forward 1 unused year (max £6,000) |
| Small gifts | £250 per person | Any number of recipients; cannot combine with annual exemption for same person |
| Wedding/civil partnership gift — to child | £5,000 | Per event, not per year |
| Wedding gift — to grandchild/great-grandchild | £2,500 | Per event |
| Wedding gift — to anyone else | £1,000 | Per event |
| Regular gifts from income | No limit | Must be from surplus income, regular pattern, not affecting standard of living |
| Gifts to spouse/civil partner | Unlimited | Always IHT exempt (if recipient is UK domiciled) |
| Gifts to registered charities | Unlimited | Also reduces estate IHT rate from 40% to 36% if charity gift is 10%+ of net estate |
Understanding IHT on Gifts: The Complete Guide
Inheritance Tax (IHT) is charged at 40% on the taxable value of an estate above the nil rate band (£325,000). Many people look to reduce their IHT liability by making gifts during their lifetime, but the rules are more complex than simply giving money away. Understanding the 7-year rule, taper relief, and the various gift exemptions is essential for effective IHT planning.
What is a Potentially Exempt Transfer (PET)?
A Potentially Exempt Transfer is any outright gift made to an individual — whether a cash gift, shares, property, or other assets. PETs are the most common type of lifetime gift and have the most favourable IHT treatment. A PET becomes fully exempt from IHT if the donor survives for 7 complete years after making it. If the donor dies within 7 years, the gift may become chargeable to IHT, subject to taper relief if the gift was made more than 3 years before death.
It is important to note that taper relief reduces the rate of IHT — not the value of the gift. If a £200,000 PET is within the nil rate band, there is no IHT due regardless, and taper relief is irrelevant. Taper relief only applies where the cumulative chargeable gifts exceed the nil rate band.
Chargeable Lifetime Transfers (CLTs)
Unlike PETs, Chargeable Lifetime Transfers (CLTs) are immediately chargeable to IHT at the lifetime rate of 20% (half the death rate) if they exceed the nil rate band. CLTs are most commonly gifts into discretionary trusts. The remaining 20% is only due if the donor dies within 7 years and the charge is recalculated at the full 40% rate (less any lifetime tax already paid).
CLTs also use up the nil rate band, which affects PETs made later within the same 7-year window. This is known as the cumulative 7-year look-back rule. When calculating IHT on any transfer, HMRC adds together all chargeable transfers made in the 7 years before that transfer to determine how much nil rate band remains.
The Nil Rate Band and Residence Nil Rate Band
The nil rate band (NRB) is £325,000 and has been frozen until at least 2030. Any estate value below the NRB is free from IHT. Married couples and civil partners can transfer their unused NRB to the surviving spouse, giving a combined NRB of up to £650,000.
The Residence Nil Rate Band (RNRB) is an additional allowance of £175,000 (2025/26) available when the family home (or equivalent value) is passed to direct descendants. This increases the effective nil rate band to £500,000 per person (£1 million combined for couples). The RNRB tapers away for estates over £2 million, reducing by £1 for every £2 above that threshold.
Regular Gifts from Normal Expenditure Out of Income
One of the most powerful — and underused — IHT exemptions is the normal expenditure out of income exemption. Gifts that are part of a regular pattern, made from surplus income (not capital), and do not reduce the donor's standard of living are immediately exempt from IHT, with no upper limit and no 7-year rule. This could include regular monthly gifts to children, paying grandchildren's school fees, or premiums on a life insurance policy held in trust.
Life Insurance in Trust
A common strategy is to take out a whole-of-life or term insurance policy and write it in trust for beneficiaries. The sum assured is then paid directly to the trust on death, outside the estate and free of IHT. This is often used specifically to cover the expected IHT liability on a large estate or outstanding lifetime gifts within the 7-year window. The premiums may also qualify as normal expenditure out of income.
Record-Keeping for IHT Gifts
It is vital to keep detailed records of any significant gifts — the date, amount, recipient, and nature of the gift. After death, executors must complete HMRC's IHT forms and declare all gifts made in the 7 years before death. If records are incomplete, HMRC may dispute valuations or classifications. A gift register or letter from a solicitor confirming the terms of each gift can be invaluable for your estate's executors.
Worked Examples: IHT Gift Calculator
Example 1: PET Gift Within Nil Rate Band
- Gift: £200,000 to adult child (PET)
- Nil rate band remaining: £325,000
- Annual exemption used: £3,000
- Chargeable value: £200,000 − £3,000 = £197,000
- £197,000 is within the remaining nil rate band → IHT at any year: £0
- If donor dies within 7 years, the NRB remaining is reduced to £128,000 for estate purposes
Example 2: PET Exceeding Nil Rate Band — Donor Dies in Year 4
- Gift: £450,000 to adult child (PET)
- Nil rate band: £325,000
- Excess above NRB: £450,000 − £3,000 (annual exempt) − £325,000 = £122,000
- Donor dies 4 years after gift → taper relief: 24% IHT rate
- IHT due: £122,000 × 24% = £29,280
- If donor had died within 3 years: £122,000 × 40% = £48,800
- If donor survives 7 years: £0
Expert Reviewed — This calculator uses official HMRC IHT rates and taper relief percentages. IHT rules are complex and estate-specific. Always seek advice from a qualified financial adviser or solicitor for large estates. Last verified: March 2026.