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Gifts made more than 7 years before death are inheritance tax-free. Gifts within 7 years are taxable if the estate exceeds £325,000. Taper relief reduces tax on gifts made 3-7 years before death (40% down to 8%). Always exempt: spouse transfers, charity gifts, £3,000 annual allowance.
When someone dies, gifts they made in the 7 years before death may be subject to inheritance tax. This guide explains the rules executors and families need to understand, plus potential changes that could be announced in the November 2025 Budget.
Average reading time: 10 minutes • Last updated: November 2025
There is speculation that the November 2026 Budget could extend the 7-year rule to 10 years, introduce a lifetime cap on tax-free gifts, or remove taper relief. Nothing is confirmed until the Chancellor announces the Budget on 26 November. We'll update this guide with any changes.
The 7-year rule applies to "potentially exempt transfers" (PETs) - gifts that become exempt from inheritance tax if the person who made them survives for 7 years.
The gift becomes fully exempt from inheritance tax. It doesn't count towards the estate value and the recipient keeps the full amount.
The gift is added back to the estate for inheritance tax purposes. Tax may be due depending on:
If a gift was made between 3 and 7 years before death, taper relief reduces the inheritance tax payable. The relief works as follows:
| Years Between Gift and Death | Tax Rate Reduction | Effective IHT Rate |
|---|---|---|
| 0 to 3 years | No reduction | 40% |
| 3 to 4 years | 20% reduction | 32% |
| 4 to 5 years | 40% reduction | 24% |
| 5 to 6 years | 60% reduction | 16% |
| 6 to 7 years | 80% reduction | 8% |
| More than 7 years | Fully exempt | 0% |
Taper relief reduces the rate of tax charged on a gift, not the value of the gift itself. The full gift value still counts when calculating whether the estate exceeds the nil-rate band.
Some gifts are completely exempt from inheritance tax, regardless of when they were made:
Gifts to a spouse or civil partner are always exempt, with no limit on value. The recipient must be UK-domiciled, or the exemption is limited to £325,000.
Gifts to UK-registered charities and qualifying political parties are fully exempt.
Each person can give away up to £3,000 per tax year without it counting towards IHT. Unused allowance from the previous year can be carried forward (maximum £6,000 in one year).
Gifts of up to £250 per recipient per year are exempt. You can give to as many people as you like, but not to anyone who has already received part of your £3,000 annual exemption.
Gifts made from surplus income (not capital) are exempt if they form part of a regular pattern and don't affect the giver's standard of living. This is one of the most valuable exemptions but requires good record-keeping to prove.
Payments for the maintenance of a spouse, ex-spouse, dependent relative, or child in full-time education are exempt.
As an executor, you must identify all gifts made by the deceased in the 7 years before death. This can be challenging:
If the deceased continued to benefit from a gift (e.g., gave away their house but continued living there rent-free), it's treated as still being part of their estate. The 7-year rule doesn't apply to these "gifts with reservation of benefit".
Scenario: Sarah died in November 2026. She made the following gifts:
Calculation:
Applying taper relief:
The recipient of the gift is normally responsible for paying any IHT due on that gift. However, if they can't or won't pay, the liability falls to the estate. This is important for executors to understand when administering the estate.
There has been significant speculation about potential changes to gifting rules in the November 2025 Budget. None of these are confirmed:
The 7-year period could be extended to 10 years. This would mean gifts must be made a decade before death to become fully exempt. Impact: More gifts would be caught by IHT, particularly affecting older people who made gifts thinking they were safe after 7 years.
A new limit on the total amount that can be given away tax-free during a lifetime (rumoured at £50,000-£100,000). This would fundamentally change how inheritance tax works, moving from a time-based system to an amount-based cap.
Taper relief could be removed, meaning any gift within the qualifying period (7 or 10 years) would be taxed at the full 40% rate. This would create a harsh "cliff edge" rather than the gradual reduction under current rules.
Before the October 2024 Budget, there was widespread speculation about extending the 7-year rule and introducing gift caps. None of these changes were announced. Budget rumours should be treated with caution.
Understanding the 7-year rule is essential for executors dealing with an estate. If the deceased made significant gifts, consider seeking professional advice to ensure correct reporting and tax calculation.
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