Gifting and the seven-year rule

One of the simplest ways to reduce IHT is to give money away while you're alive. But the rules aren't quite as generous as people often think.

The basics

Most lifetime gifts are "potentially exempt transfers". If you survive seven years after making the gift, they fall out of your estate entirely.

Taper relief — what it actually does

A common misconception: taper relief reduces the tax on gifts, not the value of the gift itself. And it only applies if the total gifts exceed the nil-rate band.

• 0–3 years: 100% of the tax due
• 3–4 years: 80%
• 4–5 years: 60%
• 5–6 years: 40%
• 6–7 years: 20%
• 7+ years: 0%

Annual exemptions worth using

• £3,000 per year (can carry forward one year)
• Small gifts of up to £250 per person
• Regular gifts out of surplus income (a valuable but underused exemption)
• Wedding gifts of £5,000 (child), £2,500 (grandchild) or £1,000 (anyone else)

The takeaway

Gifting works best when it's planned early and documented properly. Leaving it until later in life often means the seven-year clock never runs down.