The 7 Year Rule: How Lifetime Gifts Reduce Inheritance Tax (IHT)
- Wills, Trusts & Probate
- 12th Jan 2026
Inheritance Tax (IHT) planning is a key part of protecting your estate for future generations. Many people assume that gifting money during their lifetime automatically reduces IHT liability—but that’s not always the case. What is the 7-Year Rule for Inheritance Tax? Under UK law, if you gift more than £3,000 to someone who isn’t your […]
By Lily Evans
mlplaw
Inheritance Tax (IHT) planning is a key part of protecting your estate for future generations. Many people assume that gifting money during their lifetime automatically reduces IHT liability—but that’s not always the case.
What is the 7-Year Rule for Inheritance Tax?
Under UK law, if you gift more than £3,000 to someone who isn’t your spouse or civil partner, you must survive seven years after making the gift for it to be completely exempt from IHT. This is known as the 7-Year Rule.
Failing to outlive the gift can mean the amount is added back into your estate and taxed at the standard 40% inheritance tax rate. This often discourages “deathbed gifts,” as passing away within three years of gifting means the full value is taxed.
Taper Relief Explained
The 7-Year Rule includes taper relief, which reduces the tax payable on gifts if you survive more than three years. Here’s how it works:
| Years Since Gift | Percentage of IHT Charged |
|---|---|
| 0 – 3 years | 100% |
| 3 – 4 years | 80% |
| 4 – 5 years | 60% |
| 5 – 6 years | 40% |
| 6 – 7 years | 20% |
Know Your Gift Allowances
You can gift anybody up to £3000 each year and it will not be chargeable to IHT. If you did not use your gift allowance in the previous year, you can carry this forward once and you can gift up to £6000 in the rollover tax year.
You may also gift £250 per person in any one tax year, these gifts are exempt from IHT and you may give £250 to as many different people you like (or don’t like) in one year, this is known as the Small Gift Allowance.
Gifts to UK charities or charitable trusts are exempt from IHT without any monetary limit. This is quite a popular way to bring the estate below the taxable threshold in life and in death. (If 10% of your entire estate is left to charity, a lower rate of 36% will be charged to anything over the taxable threshold.)
Normal expenditure out of income- a lifetime transfer is exempt if it is a habitual and regular transfer of surplus income. There is no monetary limit as this will differ person to person.
Fun fact – Gifts on Marriage have the added benefit of being exempt from tax (up to a certain limit.) If you are a parent of the newlyweds, you can gift £5000 which will not be included in your £3000 allowance. Grandparents of the lovebirds can gift £2500, everyone else can gift up to £1000 to the happy couple and before tying the knot the bride/groom/civil partners can gift each other £2500. But gifts between civil partners and spouses are exempt! So why not wait until the honeymoon?
Why Careful Planning Matters
There are certain ways to facilitate lifetime transfers to reduce your Inheritance Tax liability without putting yourself in a precarious position in later life or attempting to guess when you may no longer be here. We recommend keeping a detailed record of any gifts you make for each year for your executors and for your personal records.
Speaking to a Private Client lawyer will give you peace of mind and set up any necessary trusts and advise you on how best to maximise your yearly gifting allowance.
Contact us on wtp@mlplaw.co.uk or 0161 926 9969
About the expert
Lily Evans
Paralegal
Lily is a Paralegal in mlplaw's Wills, Trusts and Probate Team. Lily graduated from Sheffield University in 2024 and has since been working within the sector supporting the with the administration of Estates, drafting Wills and providing valuable support to clients. Lily has experience in Criminal, Employment, and Private Client law and she is working towards completing her SQE exams and becoming a solicitor in the future. Prior to working at mlplaw she has worked with counsel on contentious Estate disputes, taken part in pro-bono work in the civil court and is well versed in advocating on behalf of her clients. Away from work, Lily is a pilates enthusiast and enjoys practicing and competing in Dressage on the weekends.
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