Under UK inheritance tax legislation, most gifts to individuals are classified as Potentially Exempt Transfers (PETs). A PET becomes a fully exempt transfer — completely free of inheritance tax — if the person who made it (the donor) survives for seven complete years after the date of the gift.
If the donor dies within seven years of making the gift, the gift fails to become exempt and is brought back into the taxable estate for IHT purposes. The amount of tax due depends on how long the donor survived after the gift and whether the gift value exceeds the available Nil Rate Band.
The 7-year rule is one of the most widely used and accessible inheritance tax planning tools available to UK residents. It does not require any professional arrangement or trust structure — simply gifting cash or assets to an individual starts the clock.
A Potentially Exempt Transfer is any gift of value made by an individual to:
PETs include gifts of cash, shares, property, land, and other valuable assets. They do not include gifts into discretionary trusts or most other trust structures — those are treated differently as Chargeable Lifetime Transfers (CLTs) and may trigger an immediate IHT charge of up to 20%.
There is no upper limit on the value of a PET. A parent could give their child £500,000 in cash and — provided the parent lives for another 7 years — no IHT would be due on that gift.
If the donor dies between 3 and 7 years after making a PET, taper relief reduces the effective IHT rate applied to the gift. Taper relief does not reduce the value of the gift counted against the Nil Rate Band — it only reduces the rate of tax on any amount above the NRB.
| Years Between Gift and Death | Taper Relief | Effective IHT Rate |
|---|---|---|
| Under 3 years | 0% | 40% |
| 3 to 4 years | 20% | 32% |
| 4 to 5 years | 40% | 24% |
| 5 to 6 years | 60% | 16% |
| 6 to 7 years | 80% | 8% |
| 7 years or more | 100% | 0% (fully exempt) |
Enter the gift value, years survived, and available NRB to estimate IHT due if the donor dies.
Alice gives her daughter £400,000 in June 2019. Alice dies in August 2024 — 5 years and 2 months after the gift. Alice has used her £325,000 NRB against other lifetime gifts already.
Bob gives his son £200,000 in March 2022. Bob dies in September 2024 — 2 years and 6 months after the gift. Bob has made no other lifetime transfers; his full NRB of £325,000 is available.
The following gifts are always exempt from IHT regardless of the 7-year rule, because they are exempt at the time of giving:
| Exemption Type | Annual Limit | Notes |
|---|---|---|
| Annual exemption | £3,000 per tax year | Unused allowance can carry forward one year only |
| Small gift exemption | £250 per person | Cannot combine with annual exemption for same person |
| Wedding gift — from parent | £5,000 per event | Must be made before or on the wedding day |
| Wedding gift — from grandparent | £2,500 per event | Must be made before or on the wedding day |
| Wedding gift — from anyone else | £1,000 per event | Must be made before or on the wedding day |
| Normal expenditure out of income | No limit | Must be regular, from income, leaving normal lifestyle intact |
| Gifts to UK charities | No limit | Also reduces IHT rate to 36% if 10%+ of estate donated |
| Gifts to spouse/civil partner (UK domiciled) | No limit | Full exemption between UK-domiciled spouses |
A gift fails the 7-year rule entirely if it is a Gift with Reservation of Benefit (GROB). This occurs when:
In these cases, HMRC treats the asset as still forming part of your estate at the date of death — regardless of how many years have passed since the transfer. The 7-year clock is irrelevant for GROBs.
A Deed of Variation (DoV) is a legal document signed by beneficiaries of an estate within two years of the date of death. It allows beneficiaries to redirect their inheritance — for example, to the next generation — and HMRC treats the variation as if the deceased had made those provisions in their will.
This is particularly useful when beneficiaries are already wealthy and want to pass assets to their own children directly, avoiding IHT being charged twice. A DoV does not restart the 7-year clock — it takes effect retrospectively from the date of death. All affected beneficiaries must consent in writing.
If a deceased person leaves at least 10% of their net estate to UK registered charities, the IHT rate on the remainder of the estate is reduced from 40% to 36%. The net estate is calculated after deducting the NRB, RNRB, and other reliefs, but before deducting the charitable gift itself.
In many cases, leaving slightly more to charity reduces the IHT bill on the rest of the estate by more than the extra donation costs — making the arrangement cost-neutral or even beneficial to non-charitable beneficiaries.
Pre-Owned Asset Tax (POAT) is an income tax charge that applies where someone gives away an asset and then benefits from it — as an alternative to the GROB rules. For example, if a parent gifts their home to a child and then lives there, and the arrangement does not fall under the GROB rules (perhaps because full rent is paid), POAT may still apply. POAT is assessed annually on the "benefit" received and is charged at the individual's marginal income tax rate. Specialist tax advice is essential for any arrangement involving gifting property while retaining occupation.
The 7-year rule means that gifts to individuals (Potentially Exempt Transfers, or PETs) become fully exempt from inheritance tax if the donor lives for 7 or more years after making the gift. If the donor dies within 7 years, taper relief reduces the tax due for gifts made 3–7 years before death. Gifts made under 3 years before death are charged at the full 40% IHT rate (subject to the available Nil Rate Band).
Taper relief reduces the IHT rate applied to failed PETs where the donor dies 3–7 years after the gift. Rates: 0–3 years: 40%; 3–4 years: 32%; 4–5 years: 24%; 5–6 years: 16%; 6–7 years: 8%; 7+ years: 0%. Taper relief only applies when the gift value exceeds the available Nil Rate Band — it reduces the tax rate, not the gift value itself.
Several exemptions are always IHT-free: the annual exemption of £3,000 per tax year; small gift exemption of £250 per person per year; wedding gifts of £5,000 (parent), £2,500 (grandparent), or £1,000 (anyone else); normal expenditure out of income; gifts to UK charities (unlimited); and gifts between UK-domiciled spouses or civil partners (unlimited).
A gift with reservation of benefit (GROB) occurs when you give away an asset but continue to benefit from it — for example, gifting your home to your children but continuing to live there without paying market rent. GROBs remain in your estate for IHT purposes regardless of how long ago the gift was made. The 7-year rule does not apply to GROBs.
The normal expenditure out of income exemption allows regular gifts funded from income (not capital) to be IHT-exempt with no limit, provided: the gifts form part of a regular pattern, they are made from income, and after the gifts the donor retains sufficient income for their normal standard of living. A single large gift does not qualify — the pattern must be established and maintained.
A Deed of Variation lets beneficiaries of an estate redirect their inheritance within two years of the death, with HMRC treating the redirection as if the deceased had made it in their will. This can pass assets to the next generation, increase charitable bequests to reduce the IHT rate to 36%, or correct omissions from a will. All affected beneficiaries must agree. A DoV does not restart the 7-year clock.
Yes. Gifts to UK registered charities are fully exempt from IHT with no limit. If 10% or more of the net estate is left to charity, the IHT rate on the remainder reduces from 40% to 36%. In many cases, increasing a charitable bequest slightly costs the estate nothing — the tax saving on the remainder offsets the extra donation.