Gifts Before Death and Inheritance Tax: What Counts

HMRC treats most gifts made in the seven years before death as part of your estate for inheritance tax purposes. The nil-rate band for 2025/26 is £325,000; anything above that threshold is taxed at 40% unless exemptions or reliefs apply. Annual gift allowances of £3,000, small gifts under £250 per person, and wedding gifts within set limits fall outside your estate immediately if you survive the gift by any amount of time.

How the seven-year rule works

When you make a gift, the clock starts. If you die within seven years, HMRC adds the value of that gift back into your estate to work out whether inheritance tax is due. Gifts made more than seven years before death drop out of the calculation entirely — they are called exempt transfers once the period has elapsed.

The recipient does not pay the tax; your estate does. If your estate lacks the cash to cover the bill, HMRC can ask the recipient to pay tax on the gift they received, but only up to the amount of tax attributable to that particular gift.

Taper relief reduces the tax rate on gifts made between three and seven years before death. The relief applies only to the tax due on the gift itself, not the value. If the gift falls within your nil-rate band when added to the rest of your estate, taper relief makes no difference because no tax is due in the first place.

The taper schedule is:

• 0–3 years before death: 40%
• 3–4 years: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%
• 7+ years: 0% (gift is exempt)

Detail on how the countdown and taper work is covered in our guide on the 7-year rule for gifting before you die.

Annual exemptions and small gifts

You can give away £3,000 each tax year without it counting toward your estate, even if you die the next day. If you did not use last year's allowance, you can carry it forward one year only, giving you £6,000 in total. This exemption is per person, so a couple can each give away £3,000.

Small gifts of up to £250 per person, per tax year, are also exempt, provided you have not used another exemption on the same recipient in that year. You can give £250 to as many different people as you like.

Wedding and civil partnership gifts are exempt up to:

• £5,000 to a child
• £2,500 to a grandchild or great-grandchild
• £1,000 to anyone else

These limits apply per donor, and the gift must be made shortly before or on the wedding day. Engagement gifts do not qualify unless they are also wedding gifts given at the right time.

Gifts from surplus income

Regular gifts made from your income — not your capital — can be immediately exempt if you can show that:

• The gifts were part of your normal expenditure
• You made them out of income (salary, pension, dividends, rent)
• You still had enough income left over to maintain your usual standard of living

This exemption has no upper limit in theory, but you must prove the pattern. HMRC expects a record: bank statements, a schedule of payments, evidence that your outgoings were regular and affordable. One-off lump sums do not count, even if funded from income.

Common examples include monthly payments into a grandchild's savings account, premiums on a life insurance policy for someone else, or an allowance paid to an adult child. The gifts must be habitual, not a deathbed decision.

Executors claim this exemption by completing the IHT403 form as part of the probate return. If HMRC challenges the claim, the burden of proof sits with the estate.

Gifts with reservation of benefit

If you give something away but continue to benefit from it, HMRC treats it as still part of your estate. The most common example is giving your house to your children but continuing to live there rent-free. The gift does not leave your estate for inheritance tax purposes unless you either move out or pay a market rent.

Other reservations include:

• Giving away shares but keeping the dividends
• Transferring a valuable painting to someone but displaying it in your home
• Putting money into a trust that pays you an income

The reservation must be complete and unconditional. Partial gifts or gifts where you retain any ongoing benefit will be caught. HMRC publishes detailed guidance in its Inheritance Tax Manual (IHTM14000 onwards) for complicated cases.

If you want to reduce the value of your estate while retaining some control or benefit, consider life interest trusts or discounted gift trusts, both of which have specific tax treatments. A solicitor can explain whether these structures fit your circumstances.

Record-keeping and evidence

Your executors will need to list every gift over £3,000 made in the seven years before death when applying for probate. The IHT400 form asks for the date, recipient, and value of each gift. If you do not keep records, your executors must reconstruct the list from bank statements, which is time-consuming and error-prone.

Keep a simple log with:

• Date of the gift
• Recipient's name
• Value at the time
• Which exemption you are claiming (if any)

For gifts from income, keep at least three years of bank statements and a note explaining the pattern. If you give shares, property, or other assets, record the market value on the transfer date. HMRC may ask for a formal valuation if the figures are disputed.

Executors can be personally liable for inheritance tax if they distribute the estate before paying what is owed, so accurate gift records protect everyone involved.

Practical strategies to reduce tax on gifts

Use your annual exemptions every year. If you are married or in a civil partnership, each of you has a separate £3,000 allowance, and you can give to the same recipient or split the total across several people.

Make larger gifts early. The seven-year clock only starts ticking once you have made the gift, so transferring wealth in your 60s or 70s gives you a better chance of surviving the full period than waiting until your 80s.

Spread gifts across multiple tax years. If you want to give £20,000 to a child, giving £3,000 in April one year, £3,000 the following April, and so on uses your exemptions efficiently and reduces the potentially taxable portion.

If you are charitably inclined, leaving at least 10% of your net estate to charity can reduce the inheritance tax rate on the rest of your estate from 40% to 36%. This is separate from the treatment of lifetime gifts, but it is worth understanding if you are planning your overall estate. Our guide on leaving money to charity in your will explains the calculation.

Life insurance written in trust can provide cash to cover an inheritance tax bill without increasing the value of your estate. The policy pays out to the trust, not to your estate, so the proceeds are immediately available to your executors or beneficiaries without waiting for probate.

Consider whether the residence nil-rate band applies to you. If you are passing your main home to direct descendants, you may qualify for an additional £175,000 allowance (2025/26), which can reduce the tax impact of other lifetime gifts. Check current thresholds on GOV.UK, as these figures are adjusted periodically.

For a broader view of planning options, see our guide on how to reduce inheritance tax legally.

What happens if you did not plan

If someone dies having made substantial gifts in the preceding seven years without using exemptions or surviving long enough for the gifts to fall outside the estate, the executors must calculate the tax due and report everything to HMRC.

HMRC can charge interest on unpaid inheritance tax from six months after the end of the month in which death occurred. If the estate cannot pay, the recipients of the gifts may be asked to contribute, though this is relatively uncommon in practice.

Executors sometimes use a deed of variation to redirect part of the estate after death, which can sometimes reduce the tax bill if beneficiaries agree. This does not undo lifetime gifts, but it can adjust the distribution of what remains.

The safest approach is to document gifts at the time and review your estate plan every few years. Rules and thresholds change, and what made sense in 2015 may not reflect the law or your circumstances in 2025.

For context on current rates and bands, see our explanation of inheritance tax in plain English, or check the inheritance tax threshold for 2026 to understand where the nil-rate band is heading.

This is general information, not legal advice. Wills and inheritance rules vary — for anything binding, use a regulated solicitor or will-writing service.