7-Year Gift Inheritance Tax Calculator UK (2026/27)
Calculate UK Inheritance Tax (IHT) on lifetime gifts under the statutory 7-year rule. Model Potentially Exempt Transfers (PETs), exact taper relief reductions (20% to 80%), the £325,000 Nil-Rate Band, and recipient tax liability under Section 3A & Section 7(4) of the Inheritance Tax Act 1984.
7-Year Gift Inheritance Tax Calculator
Model Potentially Exempt Transfers (PETs), exact 7-year taper relief discounts (20% to 80%), statutory £3,000 exemptions, and recipient tax liability under Section 3A & Section 7(4) IHTA 1984.
1. Lifetime Gift Details
Section 3A IHTA 1984 (PET)2. Statutory Gift Exemptions
Section 19–22 IHTA 19843. Nil-Rate Band & Prior Transfers
Section 7(1) OrderUnder s.7(1) IHTA 1984, gifts absorb the Nil-Rate Band in strict chronological order. Prior gifts reduce the tax-free band available for this transfer.
Tax chargeable on the £22,000 excess over the Nil-Rate Band at 32% effective rate.
Under statutory UK law, the recipient (donee)of the gift is primarily liable for any IHT due on a failed PET. If unpaid after 12 months, HMRC may seek payment from the donor's executors.
Statutory Calculation Trail2026/27 Tax Year
Nil-Rate Band Consumption Meter (£325,000)
Remaining NRB for future gifts/estate: £0.00Interactive 7-Year Taper Relief Stepper (Section 7(4) IHTA 1984)
Click on any milestone below to simulate tax liability across each statutory survival bracket.
Comprehensive 7-Year Taper Relief Schedule
Gross Gift: £350,000.00| Years Between Gift & Death | Taper Relief % | Effective Tax Rate | IHT Payable | Taper Tax Saved | Donee Retains |
|---|---|---|---|---|---|
| 0 to 3 years | 0% | 40% | £8,800.00 | £0.00 | £341,200.00 |
| 3 to 4 years | 20% | 32% | £7,040.00 | £1,760.00 | £342,960.00 |
| 4 to 5 years | 40% | 24% | £5,280.00 | £3,520.00 | £344,720.00 |
| 5 to 6 years | 60% | 16% | £3,520.00 | £5,280.00 | £346,480.00 |
| 6 to 7 years | 80% | 8% | £1,760.00 | £7,040.00 | £348,240.00 |
| 7+ years | 100% | 0% | £0.00 | £8,800.00 | £350,000.00 |
1. How the UK 7-Year Gift Rule Operates (Section 3A IHTA 1984)
In the United Kingdom, lifetime outright gifts between living individuals are known statutorily as Potentially Exempt Transfers (PETs) under Section 3A of the Inheritance Tax Act 1984 (IHTA 1984). Unlike capital gains or income, there is zero immediate tax charged when you transfer money, shares, or property directly to another individual.
The transfer remains “potentially” exempt until the donor survives for a full 7 calendar yearsfrom the exact date the transfer occurred. Once the 7-year anniversary passes, the gift drops out of the donor's estate entirely: it becomes 100% tax-free, and no Inheritance Tax will ever be due on it, regardless of the gift's financial scale.
2. The Statutory Taper Relief Scale (Section 7(4) IHTA 1984)
If the donor passes away within 7 years of making a PET, the gift fails and becomes a chargeable transfer. However, under Section 7(4) IHTA 1984, the statutory tax liability is tapered down if the donor survived for at least 3 years after making the transfer.
Crucially, taper relief reduces the rate of tax payable, not the value of the gift itself. The statutory taper schedule is set out below:
| Years Between Gift & Death | Taper Relief Discount | Effective IHT Rate | Statutory Provision |
|---|---|---|---|
| 0 to 3 years | 0% (Nil) | 40% | s.7(1) Baseline Rate |
| 3 to 4 years | 20% discount | 32% | s.7(4)(a) IHTA 1984 |
| 4 to 5 years | 40% discount | 24% | s.7(4)(b) IHTA 1984 |
| 5 to 6 years | 60% discount | 16% | s.7(4)(c) IHTA 1984 |
| 6 to 7 years | 80% discount | 8% | s.7(4)(d) IHTA 1984 |
| 7 or more years | 100% discount | 0% (Tax-Free) | s.3A(5) Full Exemption |
3. The £325,000 Nil-Rate Band Interaction (Why Gifts Under £325k Don't Get Tapered)
Perhaps the single greatest source of confusion in UK tax law is the interaction between the Nil-Rate Band (NRB) and Taper Relief. Under Section 7(1) IHTA 1984, lifetime gifts absorb the donor's £325,000 allowance in strict chronological order before any tax is calculated.
If you gift £200,000 to your daughter and die 4 years later, no taper relief applies. Why? Because the £200,000 gift is fully covered by your £325,000 Nil-Rate Band. The tax payable on the gift is already £0. You cannot taper a tax bill that does not exist.
The hidden consequence for your estate:That £200,000 gift has consumed most of your Nil-Rate Band. When your executors calculate the IHT on your remaining estate (your house, savings, investments), they only have £125,000 of NRB left (£325,000 − £200,000). Your remaining estate will therefore pay 40% IHT on everything above £125,000!
4. Statutory Gift Exemptions (100% Tax-Free Immediately)
Not all lifetime transfers require a 7-year survival window. Parliament has codified several statutory exemptions that take effect immediately:
Annual Exemption (£3,000)
s.19 IHTA 1984Every individual can gift up to £3,000 per tax year completely tax-free. Unused allowance carries forward for exactly 1 tax year (up to £6,000 total, or £12,000 for a married couple).
Small Gifts Allowance (£250)
s.20 IHTA 1984You can give up to £250 per person per tax year to as many individuals as you wish, provided they receive no part of your £3,000 annual exemption in that same year.
Wedding & Civil Partnership
s.22 IHTA 1984Parents can gift £5,000; grandparents can gift £2,500; bride and groom can gift £2,500 to each other; and any friend or relative can gift up to £1,000 before the wedding day.
Normal Expenditure Out of Income
s.21 IHTA 1984Unlimited amounts can be gifted tax-free immediately if paid regularly out of surplus net income (e.g. paying school fees or monthly standing orders) without reducing your standard of living.
5. Who Pays the Inheritance Tax on Failed Gifts? (Section 199 IHTA 1984)
Many people assume the deceased donor's estate always pays the Inheritance Tax. Under Section 199 of the Inheritance Tax Act 1984, this assumption is legally incorrect for lifetime gifts:
If the recipient has already spent the money and is unable or unwilling to pay, HMRC has statutory recourse under Section 199(2): once 12 months have elapsed from the end of the month of death, HMRC will issue an assessment against the executors, demanding payment directly out of the deceased donor's estate.
Strategic Protection: Gift Inter Vivos Life Insurance
To protect children from facing sudden tax bills on substantial gifts, donors often take out a 7-year decreasing term life assurance policy (known as a Gift Inter Vivos policy). Written in trust for the child, the policy payout automatically decreases each year to mirror HMRC's 20%, 40%, 60%, and 80% taper discounts, providing exact liquidity to settle any tax bill with HMRC.
6. Worked UK Case Studies & Statutory Scenarios
Scenario A: £50,000 House Deposit
0% Tax LiabilityParents gift £50,000 to their son for a London property deposit. The father dies 2 years later.
The son pays £0 tax. However, the father's remaining estate now has only £281,000 of Nil-Rate Band remaining.
Scenario B: £500,000 Wealth Transfer
4.5 Years SurvivalA mother gifts £500,000 cash to her daughter. The mother passes away 4.5 years later (falling into the 40% taper relief bracket).
Under s.199 IHTA 1984, the daughter pays £41,280 directly to HMRC. She retains £458,720 net.
7. HMRC Record Keeping & Form IHT403 Compliance
When a person passes away, HMRC requires executors to detail all gifts made within the 7 years before death on Schedule IHT403 (Gifts) as part of the probate submission. Executors must document:
- Exact date each transfer was executed.
- Full names, relationships, and National Insurance numbers of recipients.
- Nature of the transfer (cash, shares, land, chattels).
- Open market valuation on the date of transfer.
- Statutory exemptions claimed (e.g. £3k annual allowance, marriage exemption).
Always retain contemporaneous bank statements, a signed deed of gift, and a written letter of intent confirming that the transfer was an outright gift without reservation of benefit (s.102 Finance Act 1986).
Frequently Asked Questions: UK 7-Year Gift Rules
Statutory answers compiled by UK tax specialists based on the Inheritance Tax Act 1984.
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An illustration of estate or gift tax
Enter the ownership, gifts and exemptions that the tool supports. A simple estate total cannot establish all liabilities of a real estate.
The seven-year rule generally concerns potentially exempt transfers; gifts with reservation and trusts differ. Taper relief reduces tax on a chargeable gift, not the gift value. Residence and spouse rules require care.
Check the rules for your circumstances
Official guidance supports the rules described here; it does not approve or certify this calculator. Confirm dates, eligibility and unsupported cases before making a financial decision.