UK Inheritance Tax 7-Year Gift Rule and Taper Relief (2026/27)

A gift to another person is a potentially exempt transfer (PET) under IHTA 1984 s.3A. If the giver lives for 7 years afterwards, the gift is outside their estate for Inheritance Tax. If they die sooner, the gift uses their £325,000 nil-rate band first, and any tax on the part above the band is reduced by taper relief once 3 years have passed. Some gifts are exempt immediately and never enter the 7-year count. This guide sets out the 2026/27 rules with worked examples computed from our IHT gift taper calculator.

Taper relief by year

Taper relief reduces the tax on a gift, not the value of the gift (IHTA 1984 s.7(4); HMRC IHTM14612). GOV.UK states the resulting rates directly, and adds that taper only applies where the gifts made in the 7 years before death add up to more than the nil-rate band (GOV.UK).

Years between gift and death	Reduction in the tax	Rate on the gift
Less than 3	0%	40%
3 to 4	20%	32%
4 to 5	40%	24%
5 to 6	60%	16%
6 to 7	80%	8%
7 or more	Gift is outside the estate	0%

Worked example: a £500,000 gift to a child

A parent gives £500,000 to a child and has no other gifts in the previous 7 years. One £3,000 annual exemption is used (the previous year's is assumed already spent), so £497,000 counts. The first £325,000 is covered by the nil-rate band, leaving £172,000 chargeable if the parent dies within 7 years.

Complete years survived	Tax before taper	Taper relief	Tax due
2	£68,800	£0	£68,800
3	£68,800	£13,760	£55,040
4	£68,800	£27,520	£41,280
5	£68,800	£41,280	£27,520
6	£68,800	£55,040	£13,760
7 or more	£0	Gift exempt	£0

Two points the table does not show. First, the child who received the gift is the person who pays this tax: GOV.UK says that once more than £325,000 has been given away in the 7 years before death, anyone who received a gift in those 7 years pays Inheritance Tax on it. Second, the gift has used the whole nil-rate band, so the rest of the estate gets none of it and is taxed at 40% from the first pound (less any residence nil-rate band of up to £175,000 if a home passes to direct descendants).

Several gifts in the 7 years

Gifts are taken in date order. Each one uses whatever nil-rate band the earlier gifts left, and taper is worked out separately for each gift according to its own date. GOV.UK's example: someone gave £325,000 to her sister 4 years and 2 months before death and £100,000 to a friend 3 years before death. The gift to the sister used the whole band, so the friend paid tax on all of the £100,000 at 32% (£32,000), and the remaining estate paid 40% on everything (GOV.UK).

Gifts that are exempt straight away

Exemption	Limit	Rule
Annual exemption	£3,000 a tax year	Unused amount carries forward one year only (IHTA 1984 s.19)
Small gifts	£250 per person a tax year	Only if the total to that person in the year is no more than £250 and no other allowance is used on them (s.20)
Wedding or civil partnership	£5,000 / £2,500 / £1,000	From a parent / from a grandparent or other remoter ancestor (or one partner to the other) / from anyone else, per marriage (s.22)
Normal expenditure out of income	No limit	Regular, paid from income not capital, and leaving enough income to keep your usual standard of living (s.21)
Spouse or civil partner	No limit	Capped at the nil-rate band if you are a long-term UK resident and your spouse is not (s.18(2))
Charities and qualifying political parties	No limit	IHTA 1984 s.23 and s.24

Per GOV.UK, the wedding allowance and regular gifts from income can each be combined with other allowances for the same person, but the small gift allowance cannot. As an illustration, in one tax year a grandparent could give the £3,000 annual exemption to one person, £250 to each of 4 grandchildren who receive nothing else from them, £5,000 to their own child on the child's wedding, and £600 a month from surplus income: £16,200 in total, none of it entering the 7-year count, provided the income test is genuinely met. Keep records of what you gave, to whom, its value and the date - your executors will need them.

Gifts into trust

Most gifts into trust are chargeable lifetime transfers rather than PETs. If the trustees pay, tax of 20% is due at the time on the value above the nil-rate band; if the settlor pays instead, the loss to their estate is larger and so is the tax (GOV.UK). If the settlor dies within 7 years, the gift is recharged at the death rate with taper and the lifetime tax is credited, but never refunded (IHTA 1984 s.7(4)-(5)).

Example, ignoring annual exemptions: £500,000 into a discretionary trust uses £325,000 of band, so the trustees pay 20% of £175,000 = £35,000. If the settlor dies 4 to 5 years later, the tax at death rates with taper is £42,000, so £7,000 more is due. If they die 5 to 6 years later the death-rate figure is £28,000, which is below the £35,000 already paid, so nothing more is due and nothing is repaid. Relevant property trusts also pay 10-year anniversary and exit charges of at most 6%.

Before you give

• A gift you keep using (a home you still live in rent-free, a painting still on your wall) is a gift with reservation under Finance Act 1986 s.102 and stays in your estate however long you live.
• Giving away assets other than cash can trigger Capital Gains Tax for you now, separately from any Inheritance Tax later.
• Spouses and civil partners each have their own annual exemption and nil-rate band, and any nil-rate band unused on the first death can pass to the survivor (see our Inheritance Tax rules guide).
• From 6 April 2027 most unused pension funds are due to come into the estate for Inheritance Tax; see our April 2027 pensions guide.