UK IHT 7-Year Gift Taper 2026/27

Taper bands at a glance (£500,000 gift, no NRB)

Same £500,000 gift, same chargeable slice. The only variable is how many complete years the donor survived after the gift. The tax bill falls from £198,800 to zero across the 7-year window.

The 7-year rule, in one sentence

In the UK, a lifetime gift from one individual to another is outside your estate for Inheritance Tax purposes if you survive seven complete years from the date of the gift. Die any earlier and the gift becomes part of the death estate retrospectively. Taper relief softens the IHT bill on the chargeable slice as you get closer to the seven-year line, but only after three complete years - and only on the tax, not the gift value.

This is the most misunderstood part of UK IHT planning. Below is the mechanic in full, with worked examples that match the calculator above.

What is a PET?

A Potentially Exempt Transfer (PET) is the technical name for a qualifying lifetime gift. To be a PET, the gift must be:

• From one individual to another individual, or to an absolute (bare) trust, or to a disabled person’s trust.
• An actual transfer of value at the date of the gift (cash, shares, property, valuables, business assets).
• Not retained for the donor’s continued benefit (see “gifts with reservation” below).

Gifts to a spouse or civil partner are normally exempt (IHTA 1984 s.18), so they never become PETs and the 7-year clock never starts. The exemption is limited to £325,000 where the giver is a long-term UK resident and the spouse is not (s.18(2)). Gifts to charities are also exempt. Gifts into a discretionary trust are not PETs - they are Chargeable Lifetime Transfers (CLTs), taxed at 20% when made on any amount above the available Nil-Rate Band, with further tax at death if you die within 7 years. Taper relief can reduce that death-time charge, but not below the tax already paid in your lifetime (HMRC IHTM14611).

This calculator models the most common case: an outright PET to an individual recipient.

The taper relief table

Per section 7(4) of the Inheritance Tax Act 1984, as explained in HMRC manual IHTM14612 and on GOV.UK, taper relief on the tax payable on a failed PET is:

The “complete years” count is strict. Surviving six years and 364 days still puts you in the 6 to 7-year band - one day short of the full exemption. The fractional time within a band counts for nothing; only crossing into the next whole year matters.

The critical misconception: taper relieves tax, not gift value

By far the most common misunderstanding of the 7-year rule is that the gift itself tapers in value. It does not. The gift enters the IHT calculation at its full value at the date of the gift, regardless of how many years have passed. The exception is “fall in value” relief: if the recipient still owns the gifted asset at the death (or has sold it at arm’s length) and it is worth less than when it was given, the tax on the gift can be worked out on the lower value (IHTA 1984 s.131).

What tapers is the tax - and only on the slice of the gift that exceeds the available Nil-Rate Band at the date of death.

Example 1: £100,000 gift, donor dies after 5 years

• Gift value: £100,000
• Annual exemption (£3,000) applied: chargeable amount = £97,000
• Available NRB at death (assume no other lifetime gifts): £325,000
• NRB absorbs the full £97,000: chargeable above NRB = £0
• Taper relief applies to £0 of tax = £0 IHT

The gift was always going to be tax-free because it was well within the NRB. Surviving 7 years simply means the £97,000 of NRB the gift consumed is freed up for the rest of the estate to use. That is the real benefit of surviving the 7-year window for sub-NRB gifts.

Example 2: £500,000 gift, donor dies after 6 years

• Gift value: £500,000
• Annual exemption applied: chargeable amount = £497,000
• Available NRB (assume £0, consumed by earlier gifts): £0
• Chargeable above NRB: £497,000
• Tax before taper: £497,000 x 40% = £198,800
• Taper relief at 6-7 yrs: 80%
• Tax after taper: £198,800 x 20% = £39,760

Here taper relief saves £159,040 of tax. The gift goes from a punishing £198,800 IHT bill to a manageable £39,760 - an 8% effective rate.

Example 3: £325,000 gift exactly at NRB, donor dies after 2 years

• Gift value: £325,000
• Annual exemption applied: chargeable amount = £322,000
• Available NRB: £325,000 - absorbs the full £322,000
• Chargeable above NRB: £0
• Taper relief: irrelevant - no tax to taper.
• £0 IHT on the gift.

But: the gift has consumed £322,000 of the NRB, leaving only £3,000 of NRB for the residuary death estate. If the rest of the estate is £600,000 (and, for simplicity, no residence nil-rate band applies), the estate pays IHT on £597,000 (£600k - £3k remaining NRB), which is £238,800 at 40%. The gift was “tax-free” but it has not saved the family any IHT overall - the NRB went somewhere either way.

This is why the 7-year rule matters most for gifts above the NRB - those genuinely move value out of the IHT net, provided the donor survives long enough.

The annual exemption

Every individual has a £3,000 annual gifting allowance per tax year that is exempt from IHT entirely. This is applied before the gift enters the 7-year PET regime, so:

• A £3,000 gift is fully exempt and never enters the calculation.
• A £10,000 gift is treated as £3,000 exempt + £7,000 PET (taper applies to the £7,000).
• Unused annual exemption can be carried forward by one tax year only. A donor who used none in the previous year can gift £6,000 exempt in the current year.

The calculator applies the £3,000 exemption by default. If you used it on another gift earlier in the same tax year, toggle the checkbox off.

Other small exemptions not modelled by this calculator but worth knowing:

• Small gifts exemption: £250 per recipient per year, unlimited recipients. Cannot combine with the £3,000 annual exemption to the same person.
• Wedding gifts: £5,000 from each parent, £2,500 from each grandparent / great-grandparent, £2,500 from one party to the other, £1,000 from anyone else.
• Normal expenditure out of income: gifts that come from genuine surplus income (not capital) and form part of regular gifting behaviour are immediately exempt. Powerful for high-income donors but requires meticulous evidence.

How NRB and lifetime gifts interact

The Nil-Rate Band is £325,000 in 2026/27 (frozen to April 2031). Gifts made in the 7 years before death are taken into account in date order, earliest first, and the nil-rate band is set against them before it is set against the estate left at death.

Imagine three gifts, with the giver dying 6, 5 and 4 years after them respectively (so all three are inside the 7-year window), each reduced by one £3,000 annual exemption:

The first two gifts use £244,000 of the band, leaving £81,000 for the third gift. Tax on its £116,000 excess is £46,400 at 40%; it was made 4 to 5 years before death, so taper relief of 40% reduces that to £27,840, payable by the person who received it.

The death estate now has no NRB left - all £325,000 was used by the three gifts. Everything in the estate above any Residence Nil-Rate Band (if it applies) is taxed at 40%. This NRB displacement effect is the hidden cost of lifetime gifting that taper relief does not address.

Who pays the IHT on a failed PET?

The recipient of the gift is liable for the tax on it (IHTA 1984 s.199(1)(b)). The personal representatives become liable only where, broadly, the tax is still unpaid 12 months after the end of the month of death (s.204(8)). If the recipient cannot or will not pay, the estate can end up bearing it - which means the donor’s other beneficiaries pay tax that was legally someone else’s.

Some donors take out term life insurance written in trust for the 7-year period, sized to the possible tax on the gift. Written in trust, the payout falls outside the donor’s estate and can be used to meet the tax if the donor dies within the 7 years. Whether it is worth the premiums depends on the donor’s age and health and the size of the gift.

Gifts with reservation of benefit (GROB)

A gift where the donor continues to benefit from the asset is a gift with reservation: it is treated as remaining in the estate for IHT purposes (Finance Act 1986 s.102). GOV.UK gives these examples:

• Giving your home to your children but carrying on living in it without paying rent at the going rate.
• Giving away a holiday home but continuing to use it free of charge.

To avoid this the donor must stop benefiting, or pay rent at the going rate and their share of the bills (GOV.UK). The pre-owned assets Income Tax charge (Finance Act 2004 Sch 15) can apply to some arrangements where the donor keeps a benefit outside the reservation rules.

This calculator assumes the gift is a genuine PET with no reservation - add nothing if you continue to benefit from the asset.

Practical estate-planning takeaways

1. Survive 7 years: a gift to an individual that the donor survives by 7 years is exempt. A £500,000 gift made more than seven years before death is outside the estate entirely - up to £200,000 of tax at 40% that the estate would otherwise have paid on it.

2. Use the annual exemption every year: £3,000 a year per donor, or £6,000 a year for a couple, is exempt straight away. Over 7 years that is £21,000 per donor, plus one year’s carry-forward if unused.

3. Consider insuring the 7-year period for large gifts: a term life policy written in trust can meet the tax if the donor dies within the 7 years.

4. Document everything: HMRC’s IHT400 / IHT403 forms ask executors to list every gift in the 7 years before death. Missing or incomplete records create avoidable penalties and disputes.

5. Avoid GROBs: a “half-gift” where you keep benefiting is treated by HMRC as no gift at all. Either commit fully (move out, stop benefiting) or pay market rent.

See our methodology for sources and testing approach.

Related calculators and guides

• UK Inheritance Tax Calculator - the full estate calculation including NRB, RNRB, and the £2m taper.
• Capital Gains Tax Calculator - some lifetime gifts also trigger CGT for the donor on chargeable assets.
• Pension Drawdown Calculator - from April 2027 most pensions enter the IHT estate; planning starts now.
• Trivial Benefits £50 - the £50 limit that applies to employer-provided gifts, separate from the £250 small gifts exemption for personal IHT.

Browse IHT gift taper relief by gift value

Pre-calculated inheritance tax taper relief on failed potentially exempt transfers across popular gift values for 2026/27, by years survived after the gift.

• £50,000
• £750,000

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