Most gifts you make during your lifetime fall outside your estate for inheritance tax if you live for seven years after giving them. This is the seven-year rule, and it sits alongside a set of gift exemptions that let some gifts leave your estate straight away.
Gifts are one of the more widely used ways of reducing a future inheritance tax bill, but the rules have several moving parts: the seven-year clock, taper relief, the annual and small-gift exemptions, and gifts you keep a benefit from. This guide explains each one for England and Wales. Figures are current as at June 2026 and are subject to change. For the wider picture, see our Inheritance Tax Explained guide.
What is the 7-year rule?
The seven-year rule means that a gift you make during your lifetime generally falls outside your estate for inheritance tax if you live for seven years after making it. Gifts of this kind are called potentially exempt transfers. If you die within seven years, the gift can be brought back into the calculation and may be taxed, depending on its value and timing (gov.uk, gifts and inheritance tax, as at June 2026, subject to change).
The clock runs from the date of each gift, so different gifts can be at different points in their seven years at once. A gift only becomes fully exempt on the seventh anniversary. Until then it sits in the background, and it is counted first against your tax-free threshold if you die in the meantime.
How does taper relief work?
Taper relief can reduce the tax on a gift when someone dies between three and seven years after making it. It is often misunderstood: taper relief reduces the rate of tax on the gift, not the value of the gift itself, and it only comes into play once total gifts in the seven years before death exceed the tax-free threshold (gov.uk, as at June 2026, subject to change). Gifts made within three years of death are taxed at the full rate.
| Years between gift and death | Tax rate on the gift |
|---|---|
| Less than 3 years | 40% |
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more years | 0% |
Source: gov.uk/inheritance-tax/gifts, as at June 2026, subject to change. Taper relief applies only to the tax on gifts above the tax-free threshold, currently £325,000 (gov.uk/inheritance-tax). Our Inheritance Tax Thresholds and Allowances 2026/27 guide sets out the bands in full.
Because taper relief only bites on the tax above the threshold, a common misunderstanding is that any gift made after three years automatically attracts less tax. In practice, a gift that sits within the £325,000 threshold generally carries no tax to taper in the first place. This is one reason many people find the rule easier to plan around with professional input.
Which gifts are exempt from inheritance tax?
Some gifts leave your estate immediately and do not depend on surviving seven years. These exemptions can be used each tax year and, used together, they let regular giving happen without adding to a future inheritance tax bill. The main ones are set out below (gov.uk, gifts and inheritance tax, as at June 2026, subject to change).
| Exemption | What it covers (June 2026) |
|---|---|
| Annual exemption | £3,000 of gifts each tax year. Any unused amount can carry forward one tax year only. |
| Small gifts | As many gifts of up to £250 per person as you like, to people who have not received your annual exemption. |
| Wedding or civil partnership gifts | £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else. |
| Gifts to a spouse or civil partner | Generally no inheritance tax on gifts between UK-domiciled spouses or civil partners. |
| Gifts to charities and political parties | Generally exempt. |
| Normal expenditure out of income | Regular gifts from surplus income that do not affect your usual standard of living. |
Source: gov.uk/inheritance-tax/gifts, as at June 2026, subject to change. Conditions apply to each exemption, and the normal expenditure out of income exemption in particular depends on careful record-keeping.
The normal expenditure out of income exemption is often overlooked. Where gifts are genuinely regular, come from income rather than capital, and leave you able to maintain your usual standard of living, they can fall outside your estate without any upper limit and without waiting seven years. Because it relies on evidence, many people who use it keep a written record of income and outgoings.
How gifts use up the tax-free threshold
When someone dies within seven years of a gift, the gifts are set against the tax-free threshold before the rest of the estate. Under HMRC guidance, gifts use up the inheritance tax threshold first, in the order they were made, before any other assets are taxed (gov.uk, work out inheritance tax due on gifts, as at June 2026, subject to change). This ordering matters, because it decides which gifts, if any, sit above the threshold and so could carry tax.
In practice, older gifts are counted first. If your total gifts in the seven years before death stay within the £325,000 threshold, there is usually no tax on the gifts themselves, though they still reduce the threshold available to the rest of your estate. It can be worth discussing the running total with a qualified professional before making large gifts.
A worked example
The example shows two points that are easy to miss. First, taper relief only helped because part of the gift sat above the threshold. Second, a large lifetime gift can use up the threshold that would otherwise have sheltered the rest of the estate, so the benefit depends heavily on surviving the full seven years. For ways gifts sit alongside other allowances, see How to Reduce Inheritance Tax Legally.
Gifts you still benefit from
A gift only works for inheritance tax if you genuinely give it away. If you give something away but keep a benefit from it, it is a gift with reservation of benefit, and it can still count as part of your estate however long you live (gov.uk, gifts and inheritance tax, as at June 2026, subject to change). A common example is giving away a home while continuing to live in it rent free.
These situations can be complex, and paying a market rent or restructuring the arrangement may change the position. Because the rules on reservation of benefit and related tax charges are technical, this is an area where many people choose to take advice from a solicitor, a STEP practitioner or an FCA-authorised financial adviser before acting. Gifting can also form part of wider estate planning alongside a will and lasting powers of attorney.
Gifts and inheritance tax in Scotland and Northern Ireland
Inheritance tax is a UK-wide tax, so the seven-year rule, taper relief and the gift exemptions described here apply across the United Kingdom, including Scotland and Northern Ireland. The wider law around estates differs: Scotland has its own succession law, including legal rights that can give a spouse and children a fixed share of an estate, and it uses confirmation rather than a grant of probate. Northern Ireland has a separate but broadly similar system to England and Wales. Where an estate touches more than one jurisdiction, it can be worth taking advice in each.
Frequently asked questions
How much money can I gift tax-free in the UK?
You can give away £3,000 of gifts each tax year under the annual exemption, and carry any unused amount forward one year only. On top of that, you can make unlimited small gifts of up to £250 per person, certain wedding gifts, and regular gifts out of surplus income. Larger gifts fall under the seven-year rule (gov.uk, as at June 2026, subject to change).
What happens if I die within 7 years of making a gift?
The gift is brought back into the inheritance tax calculation and counted first against your tax-free threshold, currently £325,000. If total gifts stay within that threshold there is usually no tax on the gifts, though they reduce the threshold available to the rest of your estate. Gifts above the threshold may be taxed, with taper relief where death falls three or more years after the gift.
Does taper relief reduce the value of my gift?
No. Taper relief reduces the rate of tax charged on a gift, not the value of the gift itself. It applies only to gifts, or the part of gifts, above the tax-free threshold, and only where death falls between three and seven years after the gift. A gift that sits within the threshold generally carries no tax for taper relief to reduce (gov.uk, as at June 2026, subject to change).
Can I give my house to my children to avoid inheritance tax?
Giving a home away is possible, but if you continue to live there rent free it is generally treated as a gift with reservation of benefit and can still count as part of your estate. Paying a market rent may change the position. This area is technical and can have capital gains and other consequences, so many people discuss it with a qualified professional first.
Do gifts to my spouse count for inheritance tax?
Gifts between spouses or civil partners who are both UK-domiciled are generally exempt from inheritance tax, whether made during life or on death. Different rules can apply where one partner is not UK-domiciled. Because domicile can be complex, it can be worth checking the position with a suitably qualified professional (gov.uk, as at June 2026, subject to change).
Are regular gifts from my income exempt?
They can be. Gifts that are regular, made from surplus income rather than capital, and that leave you able to maintain your usual standard of living may be exempt under the normal expenditure out of income rule, with no upper limit and no need to survive seven years. Because the exemption relies on evidence, keeping a record of income and outgoings generally helps.