How does taper relief work for IHT?

Taper relief reduces the IHT due on lifetime gifts where the donor dies within 7 years: 100% of normal IHT in years 0-3, 80% in year 3-4, 60% in 4-5, 40% in 5-6, 20% in 6-7, 0% after 7 years.

Does taper relief apply to gifts under £325k?

Only if the gifts collectively exceed your Nil Rate Band. A single £200k gift with full unused NRB has £0 IHT, so taper is irrelevant.

What's a Potentially Exempt Transfer?

A PET is a lifetime gift that becomes fully IHT-exempt if the donor survives 7 years. If they die within 7 years, the gift is 'brought back' into the estate calculation.

Can I avoid IHT by giving everything away on my deathbed?

No — gifts within 7 years of death attract IHT (with taper relief). 'Deathbed' gifts may be challenged as Donatio Mortis Causa rather than valid PETs.

Does the 7-year rule apply to gifts to my children's trusts?

Trust gifts are 'Chargeable Lifetime Transfers' (CLTs), not PETs. CLTs are immediately taxable above NRB at 20%, with potential top-up of 20% if death within 7 years (so 40% total). Different rules from PETs.

How is taper relief calculated if multiple gifts exceed NRB?

Gifts are accumulated chronologically. Earliest gifts use NRB first. Once NRB is exhausted, subsequent gifts trigger IHT. Each gift's taper depends on its individual age at death.

What's the £250 small gifts exemption?

You can give £250 to as many people as you like in any tax year, with no limit on total or 7-year rule. Small gifts cannot be combined with other exemptions to the same recipient (e.g. you can't give £3k annual + £250 small gift to the same person).

Are normal expenditure gifts subject to the 7-year rule?

No — regular gifts out of surplus income are immediately exempt provided they're: (1) regular, (2) from income not capital, (3) don't reduce your living standard. Common examples: regular cash gifts to grandchildren, school fee payments, monthly transfers to family.

IHT 7-Year Rule Calculator UK 2025/26 | Taper Relief Explained

Understanding the 7-year rule

The UK's 7-year rule on lifetime gifts is one of the cornerstones of inheritance tax planning. Here's the structure:

Gifts above the £3,000 annual exemption (and other specific exemptions) are Potentially Exempt Transfers (PETs).
If you survive 7 years from the gift, the gift is fully IHT-free.
If you die within 7 years, the gift is "brought back" into your estate for IHT calculation.
Taper relief reduces the IHT (not the gift value) on a sliding scale based on years between gift and death.

Important detail — taper applies to IHT, not the gift value. If a gift uses up your Nil Rate Band, taper relief doesn't kick in because there's no IHT to taper. Taper relief only matters on gifts large enough to incur IHT after consuming the NRB.

Other exemptions that bypass the 7-year rule:

Annual exemption: £3,000 per donor per year (can carry back one year of unused).
Small gifts: £250 per recipient per year, unlimited recipients.
Wedding/civil partnership gifts: £5,000 (parent), £2,500 (grandparent/great-grandparent), £2,500 (party-to-marriage), £1,000 (anyone else).
Normal expenditure out of income: regular gifts from surplus income (must be regular, from income not capital, not reduce living standards).
Spouse/civil partner gifts (UK-domiciled): no limit, no time test.
Gifts to UK charities: no limit, no time test.
Gifts to political parties (with conditions): no limit.

Cumulation and the order of gifts

Multiple gifts within 7 years of death are accumulated in chronological order. The earliest gifts use up the NRB first, then later gifts. This affects taper relief substantially:

Gift 1 (year -7): £200,000 — uses £200k of NRB.
Gift 2 (year -5): £150,000 — uses remaining £125k of NRB; £25k incurs IHT but at year-5 taper of 40% relief.
Gift 3 (year -3): £100,000 — fully outside NRB; full 100% IHT (no taper before year 3).

The earlier the gift, the better — both for taper relief and for using up NRB allocation.

Failed PETs and the recipient's liability: If you die within 7 years, the gift recipient (not the estate) is primarily liable for the IHT, although it's usually paid from the estate. If the estate lacks funds, HMRC pursues the recipient. Take out term assurance covering the IHT liability for 7 years from each significant gift.

Three worked examples (UK 2025/26)

Example 1: £500k gift, donor dies after 5.5 years

James gifts £500,000 to his daughter on 1 May 2020. Dies 1 November 2025 (5.5 years).

Calculation: Gift uses NRB £325,000 first. Excess £175,000 incurs IHT at 40%, but with year-5-6 taper (40% relief from full): £175,000 × 40% × 40% = £28,000 IHT. Without taper, would have been £70,000.

Example 2: £100k gift, donor dies after 3.5 years

Sarah gifts £100,000 (her NRB is £325k unused). Dies after 3.5 years.

Calculation: Gift fully covered by NRB → £0 IHT. Taper relief is irrelevant because no IHT was due in the first place.

Example 3: £800k gift, donor survives 7 years

Robert gifts £800k to son on 1 January 2017. He's still alive in May 2026 (over 9 years).

Outcome: Gift is fully IHT-exempt — out of the 7-year window. Robert's NRB remains untouched for any other lifetime gifts or his eventual estate.

Common mistakes to avoid

Believing taper reduces the gift value — it reduces the IHT on the gift.
Forgetting that taper doesn't help if NRB covers the gift — no IHT means no taper benefit.
Assuming gifts to spouses face the 7-year rule — UK-domiciled spouses are fully exempt.
Not keeping records of gifts — executors must account for 7 years of pre-death gifts.
Using normal expenditure out of income exemption inconsistently — must be regular and from surplus.
Combining gifts from multiple sources to meet annual exemption — exemption is per donor, not per recipient.
Thinking a gift with reservation (e.g. parent gives house but continues living rent-free) starts the clock — it doesn't, treated as part of estate.

When to use this calculator

Use this calculator when planning lifetime gifts to children or grandchildren, after making any large gift, when reviewing your IHT exposure, or as part of estate planning. Re-run after each Budget — annual exemption (£3k) hasn't risen since 1981 and could be reformed. Track all gifts in a written register with dates and amounts for executors.

Regional differences (Scotland, Wales, Northern Ireland)

UK Inheritance Tax is UK-wide with identical £325,000 nil-rate band, £175,000 residence nil-rate band, 40% rate (36% if 10%+ to charity), and 7-year gift rules across England, Wales, Scotland, and Northern Ireland. Devolution does not affect IHT. The exception is some Scottish-specific terminology (e.g. "executor-dative" instead of "personal representative"), but the substantive tax rules are uniform. Crown Dependencies (Isle of Man, Jersey, Guernsey) have their own (much lower or zero) IHT regimes.

IHT 7-Year Rule Calculator — UK 2025/26