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 UK-resident spouse or civil partner are immediately and fully exempt - they never become PETs, and the 7-year clock never starts. Gifts to UK-registered charities are similarly exempt. Gifts into a discretionary trust are not PETs - they are Chargeable Lifetime Transfers (CLTs), taxed at 20% upfront on any amount above the available Nil-Rate Band, with a top-up at death if you die within 7 years.

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 IHTM14513, 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 (with one exception: if the asset is “appropriate property” that has fallen in value, the lower value at death can be substituted, but this is rare).

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, 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 through April 2030) and is applied in chronological order across all lifetime chargeable transfers in the 7-year window.

Imagine you make these three gifts and die five years after the last one:

* After £3,000 annual exemption. ** NRB capped at £325k - the rest is chargeable above NRB.

The Year 4 gift has £125k absorbed by remaining NRB (£325k - £247k = £78k… in this example pattern the third gift exceeds NRB by £75k). Tax on that £75k = £30,000; taper at 5-6 yrs = 60%; tax after taper = £12,000.

But the death estate now has zero NRB available - all £325k was consumed by the three lifetime gifts. The residuary estate pays full 40% tax on every pound above the Residence Nil-Rate Band (if applicable). 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?

Primary liability is the recipient of the gift, not the estate. HMRC chases them directly via the executors. If the recipient cannot or will not pay (because they have spent the money, or live abroad, or refuse), the liability falls on the residuary estate - which means the donor’s other beneficiaries effectively pay tax that legally was someone else’s.

This is the practical case for term life insurance written in trust: the donor takes out a 7-year decreasing term policy sized to the expected IHT liability on the gift, written in trust so the payout falls outside the donor’s estate, and uses the proceeds to pay the recipient’s IHT bill if the donor dies in the 7-year window. Premiums are typically modest for a fit donor in their 60s or 70s and the cost-benefit usually favours the policy for gifts of £200,000+.

Gifts with reservation of benefit (GROB)

A gift where the donor continues to benefit from the asset does NOT start the 7-year clock and is treated as remaining in the estate for IHT purposes - regardless of how many years pass. Common examples:

• Giving your house to your children but continuing to live in it without paying full market rent.
• Transferring shares in a family company but continuing to receive dividends or director’s fees.
• Gifting a holiday home but continuing to use it free of charge.

To rescue a GROB into a true PET, the donor must either pay full market rent (HMRC will check rental comparables) or stop benefiting entirely for the rest of their life. The Pre-Owned Assets Tax (POAT) regime is the income-tax backstop that catches arrangements designed to dodge the GROB rules without the donor genuinely losing benefit.

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: the simplest, most powerful IHT planning lever for cash-rich donors with adult children. A £500,000 gift seven years before death moves £500,000 out of the IHT net entirely (subject to NRB displacement - see above) - a £200,000 tax saving at 40%.

2. Use the annual exemption every year: £3,000 x 7 years = £21,000 of guaranteed IHT-free gifting per donor. A couple gives away £42,000 a decade across two donors and four annual exemptions (current + carry-forward in year one).

3. Insure the 7-year period for large gifts: a 7-year decreasing term life policy in trust converts an uncertain IHT exposure into a defined annual premium. Worth costing for any gift above £200,000.

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.

Frequently asked questions

What is taper relief on Inheritance Tax gifts?

Taper relief reduces the Inheritance Tax payable on a failed Potentially Exempt Transfer (PET) - a lifetime gift to an individual where the donor dies within 7 years. The relief percentage rises with the number of complete years between the gift and death: 0% in the first 3 years, then 20% (3-4 yrs), 40% (4-5), 60% (5-6) and 80% (6-7). After 7 complete years the gift is fully exempt and drops out of the estate entirely. Taper relief is set out in section 7(4) of the Inheritance Tax Act 1984 and explained in HMRC manual IHTM14513.

Does taper relief reduce the gift value or just the tax?

It only reduces the TAX, not the gift value itself - and only on the portion of the gift that exceeds the available Nil-Rate Band. This is the single most common misconception. If your gift is fully within the £325,000 NRB, there is no tax to taper - the gift just consumes some NRB regardless of when you die. Taper only delivers value when the gift exceeds the NRB available at the date of death.

How does the Nil-Rate Band interact with the 7-year rule?

Lifetime gifts use up your £325,000 NRB in chronological order (earliest first), looking back 7 years from the date of death. Gifts within the 7-year window are added to the estate at their original value, NRB is applied to them first, and only the excess above NRB is taxed at 40% (then tapered by survival period). Any NRB used by failed PETs is unavailable to absorb the residuary estate, which is why a large gift made 6.5 years before death can still produce a tax bill - the NRB it consumed is gone from the death estate too.

What is the annual exemption and how does it apply?

Every individual has a £3,000 annual gifting allowance per tax year, exempt from IHT entirely - it never becomes a PET and never falls into the 7-year window. The annual exemption is applied first, BEFORE the gift value enters the 7-year regime. Unused exemption can be carried forward by one tax year, so a donor who used none in the previous year can gift £6,000 IHT-free in the current year. Larger gifts have £3,000 of their value automatically exempt, with the rest treated as a PET.

What counts as a Potentially Exempt Transfer (PET)?

A PET is a transfer of value from one individual to another individual, or into an absolute (bare) trust, or into a disabled person's trust. Outright cash gifts to children, helping with a house deposit, paying off a mortgage for a relative, gifting shares - all are PETs. Gifts into discretionary trusts are NOT PETs (they are Chargeable Lifetime Transfers, taxed at 20% upfront if above NRB), and they do not benefit from taper relief in the same way. Gifts to UK-resident spouses or civil partners and gifts to UK charities are immediately exempt and do not enter the 7-year window at all.

Who pays the IHT on a failed PET - the recipient or the estate?

The recipient of the gift is primarily liable for any IHT due on a failed PET. If they cannot or will not pay, the liability falls on the deceased's estate. This is one of the underappreciated risks of large lifetime gifts - if the recipient has spent the money by the time you die, your residuary estate (and therefore your other beneficiaries) ends up footing the bill. Term life insurance written in trust to cover the potential IHT liability for the 7-year period is a common mitigation - the premiums fall outside the estate when written in trust.

Are gifts with reservation of benefit covered by the 7-year rule?

No. A "gift with reservation of benefit" (GROB) - where the donor continues to benefit from the gifted asset, like giving away a house but still living in it rent-free - does NOT start the 7-year clock. The asset is treated as remaining in the estate for IHT purposes regardless of when the gift was made. To make a GROB into a true PET, the donor must pay full market rent for any continuing use, or stop benefiting entirely. The "pre-owned assets" tax regime (POAT) is the anti-avoidance backstop where the donor exits the GROB rules.

What records should I keep for lifetime gifts?

Executors need to know about every gift the deceased made in the 7 years before death to complete form IHT400 / IHT403 correctly. Keep a written record of: gift date, recipient name and address, asset description and value at the gift date, and any exemptions claimed (annual £3k, small gifts £250, normal expenditure out of income, wedding gifts). HMRC checks bank statements and Land Registry records for material undisclosed gifts. The "normal expenditure out of income" exemption is the most powerful for regular gifters but requires meticulous evidence that the gift came from surplus income, not capital.

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