Inheritance Tax 7-Year Rule Calculator UK 2025/26

Quick answer: Gifts to individuals are Potentially Exempt Transfers (PETs) — taxed at 40% if you die within 3 years, tapering to 0% after 7. Annual £3,000 exemption + £250/person small gifts mean most modest gifting is IHT-free.

Reviewed by Mustafa Bilgic · UK Calculator Editor · Updated May 2026

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The Inheritance Tax 7-year rule lets you give away assets and remove them from your estate — provided you survive 7 years. Within 3 years it's full 40% IHT; from year 3 the rate tapers down. Plus various exemptions (£3k annual, £250 small gifts, wedding gifts, normal expenditure out of income) reduce the IHT bite.

Annual gross salary (£)

How inheritance tax 7-year rule calculator works in 2025/26

The 7-year taper relief schedule:

Years between gift and death	IHT rate	Reduction
0-3 years	40%	0% (full IHT)
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%	100% reduction (out of estate)

Key IHT exemptions you can use BEFORE the 7-year rule:

Annual exemption: £3,000/year (any gifts up to this — IHT-free immediately). Unused allowance carries forward 1 year (so up to £6,000 in some years).
Small gifts: £250 to any one person per year (cannot combine with £3,000 annual to same person)
Wedding gifts: £5,000 to child, £2,500 to grandchild, £1,000 to anyone else
Normal expenditure out of income: regular gifts from surplus income — totally IHT-free if pattern shown
Spouse/civil partner: unlimited gifts IHT-free between UK-domiciled couples
Charity gifts: 100% exempt

Important: Taper only reduces the IHT RATE on the gift — not the gift amount itself. And taper only applies above the Nil-Rate Band (£325k). Gifts within NRB pay no IHT regardless of timing.

Worked example: £100k gift, donor dies after 4 years

Gift £100k. NRB £325k assumed used by other gifts/estate. Tapered IHT: 24% × £100k = £24,000. Saving vs full IHT (40%): £16,000.

Gross: £100,000 → Take-home: £76,000.00/year (£6,333.33/month)

Worked example: £500k gift to children, donor survives 8 years

Gift entirely outside estate after 7 years. £500k saved from 40% IHT = £200,000 saving. Worth doing for wealthy estates with NRB already used.

Gross: £500,000 → Take-home: £500,000.00/year (£41,666.67/month)

Worked example: £3k annual + £5k wedding to daughter

Total £8k. £3,000 annual exemption + £5,000 wedding gift to child = entirely IHT-exempt. Use £3k annual every year — over 20 years that's £60k removed from estate immediately.

Gross: £8,000 → Take-home: £8,000.00/year (£666.67/month)

Frequently asked questions

What is a PET?

Potentially Exempt Transfer — a gift to an individual (NOT a trust). PETs become fully exempt if the donor survives 7 years. Within 7 years, IHT may apply on amounts above the NRB at tapered rates.

Does the 7-year rule apply to gifts to my spouse?

No — gifts between spouses/civil partners (both UK-domiciled) are unlimited and IHT-exempt at any time. The 7-year clock isn't needed.

Can I give my house to my children to avoid IHT?

Yes BUT — if you continue to live in it without paying full market rent, HMRC treats it as a Gift With Reservation of Benefit (GROB). It stays in your estate for IHT purposes regardless of the 7-year rule. Genuine arms-length transfers (children let it to others, you live elsewhere) work.

What's "normal expenditure out of income"?

Regular gifts from surplus income (after living costs) are immediately IHT-free, no 7-year wait. Must show: (a) regular pattern, (b) made from income (not capital), (c) doesn't reduce your standard of living. E.g. £1,000/month to grandchildren from £8k pension.

How does the £3,000 annual exemption work?

First £3,000 of gifts each tax year is IHT-free immediately (no 7-year wait). Unused allowance carries forward 1 year only — so if you didn't use last year's £3k, you can give £6k this year. Used "first in, first out" — current year used before carryforward.

What gifts must be reported on death?

Executors report ALL gifts in the 7 years before death on form IHT400. HMRC may also ask about gifts 7-14 years prior if you used a trust ("chargeable lifetime transfers"). Keep records of all significant gifts.

Does taper apply to gifts to trusts?

Trusts are "Chargeable Lifetime Transfers" (CLTs), not PETs. Different rules: gifts to most trusts trigger immediate 20% IHT on amounts above NRB, with topping up to 40% if donor dies within 7 years. Taper relief applies to the additional 20% (not the original 20%).

Official UK Sources

Last reviewed: May 2026 against HMRC 2025/26 rates.

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