7-Year Gift Rule Calculator UK Inheritance Tax Planning

Worried About UK Inheritance Tax on Gifts Use Our 7-Year Gift Rule Calculator to Plan Smartly and Save

Passing on wealth to your loved ones is a wonderful thing to do. However, many people in the UK are caught off guard by Inheritance Tax (IHT) on gifts they've made during their lifetime. The rules can seem complicated, but understanding one key principle—the "7-year rule"—can make all the difference.

This is where our simple tool comes in. This guide will walk you through everything you need to know about the 7-year rule and how to use our free 7-Year Gift Rule Calculator to see where you stand. By planning ahead, you can potentially save your family thousands of pounds.

What Is the 7-Year Gift Rule?

In simple terms, the 7-year rule is a principle used by HM Revenue & Customs (HMRC) to determine whether Inheritance Tax needs to be paid on gifts you've given away.

Gifts made more than 7 years before you pass away: These are generally exempt from Inheritance Tax, no matter how large they are.
Gifts made less than 7 years before you pass away: These are known as "Potentially Exempt Transfers" (PETs). They might be subject to Inheritance Tax, depending on their value and how long ago they were made.

The tax is not a straight 40% on every gift within the 7-year window. A sliding scale, known as "taper relief," reduces the amount of tax owed as more time passes.

How Taper Relief Works

Taper relief is the most important part of the 7-year rule. It reduces the rate of Inheritance Tax on a gift, depending on how many years have passed between the date of the gift and the date of death.

The standard Inheritance Tax rate is 40%. Taper relief only applies to gifts that, when added to any other gifts made in the previous 7 years, exceed the Nil-Rate Band (currently £325,000).

Here is how the relief is applied:

Years Between Gift and Death	Tax Paid 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%

As you can see, the longer you live after making a gift, the lower the potential tax bill for your loved ones.

Annual IHT Gift Allowances and Exemptions

Before a gift even starts the 7-year clock, you can take advantage of several annual allowances that are completely exempt from Inheritance Tax. These are gifts you can make every year without any IHT implications.

Annual Exemption: You can give away a total of £3,000 worth of gifts each tax year. You can also carry over any unused allowance from the previous year, but for one year only, giving you a potential total of £6,000.
Small Gift Exemption: You can give as many gifts of up to £250 per person as you want each tax year, as long as you haven’t used another exemption on the same person.
Wedding or Civil Partnership Gifts: You can give a tax-free gift to someone who is getting married. The amount depends on your relationship to them:
- £5,000 from a parent
- £2,500 from a grandparent
- £1,000 from anyone else
Gifts to a Spouse or Charity: Any gifts made to your spouse or civil partner (as long as they live in the UK permanently) or to a UK charity are completely exempt from IHT.
Gifts from Normal Expenditure: Regular payments you make from your income (not your capital) can also be exempt, provided they don't affect your standard of living.

Using these allowances wisely is the first step in smart estate planning. Any gift that falls outside these exemptions is a Potentially Exempt Transfer and is subject to the 7-year rule.

How to Use Our 7-Year Gift Rule Calculator

Our calculator is designed to be straightforward. It gives you a clear estimate of the potential Inheritance Tax due on a specific gift, helping you see the impact of taper relief.

Step-by-Step Guide:

Enter the Value of the Gift: Input the total value of the gift in pounds (£). This could be cash, the value of a property, or shares.
Enter the Date the Gift was Made: Use the date picker to select the exact date the gift was given.
Enter the Date of Death: Select the date of death. For planning purposes, you can use today's date or a future estimated date to see how the tax liability changes over time.
Confirm Your Remaining Nil-Rate Band: You'll be asked about your Nil-Rate Band (£325,000). If you have made other large gifts in the 7 years before this specific gift, they will have used up some of this allowance. You need to tell the calculator how much of the £325,000 is left. If you're unsure, assume it's fully available for a simple calculation.

Understanding Your Results:

Once you've entered the information, the 7-Year Gift Rule Calculator will instantly show you:

Time Elapsed: The number of years and months between the gift and the date of death.
Applicable Taper Relief: The percentage discount on the tax rate (e.g., 40% relief).
Taxable Amount of the Gift: The portion of the gift's value that is above the remaining Nil-Rate Band.
Estimated IHT Due: The final estimated tax bill on that specific gift.

A Worked Example

Let's imagine David gave his daughter, Emily, a gift of £400,000 on 15th June 2020 to help her buy a house. Sadly, David passed away on 30th September 2025. He had not made any other large gifts in the years prior, so his full £325,000 Nil-Rate Band was available.

Gift Value: £400,000
Date of Gift: 15/06/2020
Date of Death: 30/09/2025
Nil-Rate Band: The first £325,000 of the gift uses up David's Nil-Rate Band.
Taxable Portion: £400,000 - £325,000 = £75,000 is potentially taxable.
Time Elapsed: 5 years and 3 months.
Taper Relief: For gifts made between 5 and 6 years before death, the tax rate is reduced by 60%. The IHT rate of 40% becomes 16%.
IHT Calculation: £75,000 x 16% = £12,000.

The Inheritance Tax due on this gift would be £12,000. Without taper relief, it would have been £30,000 (£75,000 x 40%).

Common Mistakes to Avoid

Estate planning can be tricky. Here are a few common pitfalls to watch out for:

Poor Record-Keeping: The executor of your estate will need clear records of all gifts made, including the date, value, and recipient. Keep a simple ledger.
Forgetting Previous Gifts: The 7-year clock applies to each gift individually, but the Nil-Rate Band is used up chronologically. A large gift made 6 years ago will use up the allowance before a gift made 2 years ago is considered.
Gifts with Reservation of Benefit: You cannot give something away and continue to benefit from it. For example, giving your house to your children but continuing to live there rent-free means it will still be counted as part of your estate for IHT purposes.

What to Do After You Get Your Result

Your calculator result gives you a powerful insight into your estate's potential tax liability.

If There's a Potential Tax Bill: Don't panic. This is exactly what planning is for. One of the most effective ways to cover a future IHT bill is with a life insurance policy.
If There's No Tax Bill: Excellent! This suggests your gifts fall outside the taxable threshold or the 7-year window. You should still review your financial plan every few years, as circumstances and tax rules can change.

Protecting Your Family from IHT with Life Insurance

If our calculator shows a potential Inheritance Tax bill, a simple and cost-effective solution is a life insurance policy. Specifically, a 'whole of life' policy written 'in trust' is a popular tool for IHT planning.

Here’s how it works:

You take out a life insurance policy for an amount equal to your estimated IHT liability.
You place the policy 'in trust'. This is a crucial legal step that makes the policy payout separate from your estate.
When you pass away, the policy pays out directly to your beneficiaries (your trust).
They can then use this tax-free lump sum to pay the HMRC Inheritance Tax bill, leaving the rest of your estate intact for them to inherit as you intended.

At WeCovr, we are expert brokers who help UK customers find the right life insurance policy to protect their family's inheritance. We can guide you through the process of writing it in trust to ensure it's as tax-efficient as possible.

While planning your estate, it's also wise to consider your health and financial wellbeing. Private Medical Insurance (PMI) is a separate consideration that gives you fast access to high-quality medical care. It's important to know that UK PMI is designed to cover acute conditions that arise after your policy begins. It does not cover pre-existing or chronic conditions like diabetes or high blood pressure.

As a WeCovr customer, you get complimentary access to our AI-powered calorie and nutrition tracking app, CalorieHero, helping you stay on top of your health goals. Furthermore, customers who take out a life insurance or PMI policy with us may be eligible for discounts on other types of cover.

Frequently Asked Questions

What is the current Inheritance Tax threshold in the UK?

The main Inheritance Tax threshold is called the Nil-Rate Band (NRB). For the 2024/25 tax year, it is £325,000. This is the amount you can leave behind tax-free. There is also a Residence Nil-Rate Band (RNRB) of £175,000 if you pass your main home to a direct descendant, potentially allowing a total threshold of £500,000 per person.

Who pays the tax on a gifted amount?

The recipient of a gift does not pay the tax. If Inheritance Tax is due on a gift made within 7 years of death, the tax is paid by the estate of the person who passed away. However, if the gifts use up the entire Nil-Rate Band and there isn't enough left in the estate to pay the tax, HMRC can ask the recipients of the gifts to pay it. This is why planning is so important.

Do I have to tell HMRC about gifts I make?

You do not need to inform HMRC when you make a gift. However, it is vital that you keep personal records of any gifts that are not covered by exemptions (like the £3,000 annual exemption). The executor of your Will needs these records to correctly calculate the value of your estate and any IHT due.

Take Control of Your Inheritance Tax Planning Today

Understanding the 7-year rule is the key to passing on more of your hard-earned wealth to your family. Don't leave it to chance.

Use the free 7-Year Gift Rule Calculator now to see how taper relief could reduce your estate's tax bill.

If you discover a potential liability, contact WeCovr today. Our friendly experts can provide a no-obligation quote for a life insurance policy to give you and your family complete peace of mind.