Inheritance Tax: What happens if I make a gift, then die within 7 years?

We are often asked by our clients about the meaning of the 7-year clock in inheritance tax rules, also referred to as taper relief. There are a number of misconceptions about this subject.

Essentially, the 7-year clock relates to when someone makes a gift during their lifetime. Provided that person lives for 7 years after making the gift, then the gift will be exempt from inheritance tax. If, however, the person dies within 7 years of the date of the gift, then there may be inheritance tax implications.

What constitutes a gift for inheritance tax purposes?

A gift can include money, property, personal items or anything that may be of value. A gift can also include a loss in value of something that you have given away, for example, if you sell your investment property to your children for less than it is worth, the difference in the values will be treated as a gift (and may also have Capital Gains Tax consequences for you).

What inheritance tax allowances exist for gifts?

Everyone has an annual allowance enabling them to give up to £3,000 per tax year tax free. This exemption can be carried forward if it has not been used in the previous tax year.

In addition to the £3,000, an individual can also make gifts of up to £250 to as many people as they like, provided that person hasn't been the recipient of any part of the £3,000.

There are other gifts which can be made without incurring any inheritance tax liability, such as wedding gifts up to a certain limit, gifts out of surplus income, as well as gifts between spouses. If someone is getting married, a gift can be made of up to £1,000, or if it's their child that is getting married, a gift of up to £5,000 can be made. Grandparents can also make gifts of up to £2,500 for a grandchild or great-grandchild.

Making regular gifts out of surplus income is exempt so long as it doesn't affect the donor’s usual standard of living (e.g. £200 per month paid by standing order). There  are criteriathat must be met when making these types of gifts and we recommend you obtain specialist advice in this regard.

Although there are exemptions available for making gifts, some people may wish to make a gift which does not fall within one of the exemptions (e.g. a cash gift of £350,000 to help a child to buy a house) and, if so, they do need to bear in mind the potential inheritance tax implications of making that gift on both their personal estate and that of the recipient if the person making the gift were to die within 7 years.

An allowance known as the residence nil rate band is available for those who leave a property or share of a property to a direct descendant, usually a child or grandchild. This is £175,000 for an individual, and like the nil rate band, any unused surplus can be transferred to their spouse’s estate.

This means that a married couple could have a potential inheritance tax allowance of £1 million, comprised of two £325,000 allowances and, where they leave property to a descendant, two £175,000 allowances.

These tax allowance thresholds are frozen until April 2031.

Business property relief and agricultural property relief

As of April 2026, business property relief (BPR) and agricultural property relief (APR) have been capped. Individuals are now allowed £2.5 million tax-free for assets that qualify for BPR and APR. Assets above this threshold will receive a 50% tax reduction, meaning inheritance tax is halved from 40% to 20% on this portion of an estate.

Previously, 100% relief was available, meaning that those leaving business or agricultural assets may need to revisit their future planning documentation in light of the changes.

Inheritance tax on gifts

When someone dies, their Personal Representative needs to declare to HM Revenue and Customs any gifts that have been made by the deceased, in the last 7 years. For the purposes of calculating the inheritance tax liability, lifetime gifts are deducted from the inheritance tax threshold of £325,000 (known as the 'nil rate band').

The rate of inheritance tax is 40% and is charged on the surplus of the net estate above the nil rate band. Where the deceased received all or part of the estate of their late spouse or civil partner, then it is possible for their estate to benefit from any unused 'transferable nil rate band'.

Taper relief

Only gifts made more than 3 years ago (but still within the 7-year clock) which exceed the nil rate band will benefit from a reduction in inheritance tax known as 'taper relief'.

When the total of gifts given in the previous 7 years exceeds the £325,000 nil rate band, inheritance tax is payable on the amount gifted above £325,000 at the rates below:

Years between gift and death     Rate of tax on the gift

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%

Making a gift is an important decision and one that should be considered as part of an overall Estate Planning strategy.

For more information on our services, see our page on Probate and estate administration solicitors.

Contact our Wills and inheritance tax solicitors today

To arrange an inheritance tax consultation with our Wills, Trusts and Probate solicitors in Coventry, call 024 7663 2121 or email info@bandhattonbutton.com. You can also visit us at Earlsdon Park, 53-55 Butts Road, Coventry, CV1 3BH.