The 7-Year Gift Rule: A Worked Example Showing Why Taper Relief Rarely Saves What People Think
Taper relief is the most misunderstood line in UK inheritance tax. It does not reduce the value of a gift, and it does not apply to most ordinary gifts at all — because it only ever touches the slice of gifts that exceeds the £325,000 nil-rate band. A single gift below £325,000 gets zero taper, no matter how close to the seven-year line the donor dies.
The rule in one sentence
If you give something away and survive seven years, it falls outside your estate completely. Die within seven years and it becomes a "failed potentially exempt transfer" (PET) — it is added back, eats into your nil-rate band first, and only the part above the band can be taxed. Taper relief then reduces the tax on that taxable part on a sliding scale, but only once you have used up the band. (gov.uk: Inheritance Tax on gifts)
The taper relief table
Taper relief reduces the 40% rate of inheritance tax on the taxable portion of a gift, based on how many years passed between the gift and the death. Gifts in the first three years get no relief — the full 40% applies.
| Years between gift and death | Taper relief | Effective IHT rate on the taxable slice |
|---|---|---|
| 0 to 3 years | 0% | 40% |
| 3 to 4 years | 32% off the 40% rate | 32% |
| 4 to 5 years | 24% off the 40% rate | 24% |
| 5 to 6 years | 16% off the 40% rate | 16% |
| 6 to 7 years | 8% off the 40% rate | 8% |
| 7+ years | Gift is exempt | 0% (out of estate) |
Source: gov.uk — How Inheritance Tax on a gift is paid. The percentages in the right-hand column are the effective rates HMRC actually charge on the taxable slice — 32%, 24%, 16% and 8% — after the sliding-scale relief is applied to the standard 40% rate.
The trap almost everyone falls into
People hear "if you die in year four, taper cuts the tax to 24%" and assume their £150,000 gift to a child will be taxed at 24%. It will not be taxed at all — and not because of taper. It is not taxed because £150,000 sits entirely inside the £325,000 nil-rate band.
gov.uk is explicit: "Taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold." Below the band, there is no tax, so there is nothing for taper to reduce. Above the band, taper applies only to the excess. This is why taper relief "rarely saves what people think" — for the large majority of gifts, which fall under the band, the relief is mathematically irrelevant.
Worked example — the £400,000 gift
Margaret, a widow with no prior gifts, gives her daughter £400,000 in June 2021. Margaret dies in December 2025 — 4.5 years after the gift, so it falls into the 4-to-5-year band (24%). Here is the full calculation, step by step.
Step 1 — Apply the nil-rate band to the gift first. Gifts are set against the £325,000 band in chronological order. As Margaret made no earlier gifts, this £400,000 gift absorbs the whole £325,000 band.
Step 2 — Find the taxable slice. £400,000 − £325,000 = £75,000. Only this £75,000 is potentially taxable. The first £325,000 is covered by the band and pays nothing.
Step 3 — Tax the slice at 40%. £75,000 × 40% = £30,000 of tax before taper.
Step 4 — Apply taper relief (4-to-5 years = 24% effective rate). The tax on the slice falls from 40% to 24%: £75,000 × 24% = £18,000. (Equivalently, the £30,000 is reduced by 40% to £18,000.)
The headline: on a £400,000 gift, taper relief saved £30,000 − £18,000 = £12,000. But notice the relief only ever applied to a £75,000 slice — never to the £325,000 sheltered by the band. Had Margaret gifted £325,000 or less, taper would have saved her estate nothing, because no tax would have arisen in the first place.
Why the nil-rate band is "used up" — and who loses out
Because the £325,000 band is applied to lifetime gifts in date order, a failed gift eats the band before it reaches the death estate. In Margaret's case the £400,000 gift consumed the entire £325,000 band. That means when HMRC values her remaining estate (her house, savings, possessions), none of the standard nil-rate band is left to shelter it — every pound of the death estate is taxed at 40% (subject to any residence nil-rate band or spousal transfers).
This chronological erosion is the quiet sting. The gift looked "done" years earlier, but it reaches back and strips the band from the estate she leaves behind.
Who actually pays the tax on a failed gift?
This surprises families more than anything else. The tax on a failed PET is the primary liability of the person who received the gift — not the estate. In the example, Margaret's daughter is liable for the £18,000.
| Tax arising on… | Who is liable first |
|---|---|
| The failed gift (the taxable slice) | The recipient of the gift (Margaret's daughter) |
| The death estate (everything else) | The estate / residuary beneficiaries |
If the recipient cannot or does not pay within the time limit, HMRC can pursue the estate's personal representatives, which means the burden can ultimately fall on the residuary beneficiaries — often a different person from the one who got the gift. This is why recipients of large gifts are sometimes advised to consider "gift inter vivos" life cover for the seven-year window. (See gov.uk: Paying Inheritance Tax.)
The practical takeaways
- A single gift at or below £325,000 by someone with no prior gifts is never taxed — surviving three, five or seven years does not change a zero. Taper is irrelevant.
- Taper relief only does anything on the slice of cumulative gifts above the nil-rate band.
- A failed gift erodes the nil-rate band available to the death estate, in date order.
- The recipient is first in line to pay — keep records of every gift, the date and the amount.
Get our free 7-Year Gift Record & IHT checklist
A simple template to log gifts, dates and running totals against the nil-rate band — exactly what executors need.
You're on the list — we'll be in touch.
Frequently asked questions
Does taper relief apply to a £200,000 gift?
No. A £200,000 gift (with no earlier gifts) sits entirely within the £325,000 nil-rate band, so no inheritance tax arises on it even if the donor dies after one year. Taper relief reduces tax that already exists — and here there is none to reduce. This is the single most common misunderstanding of the rule.
Is taper relief 32% / 24% / 16% / 8% of the gift or of the tax?
Those figures are the effective inheritance tax rates on the taxable slice, after the relief. Gifts in years 3-4 are taxed at 32%, years 4-5 at 24%, years 5-6 at 16%, and years 6-7 at 8%, against the standard 40% rate. Gifts in the first three years get the full 40% with no relief. (gov.uk)
Who pays the inheritance tax on a gift if the giver dies within 7 years?
The person who received the gift is primarily liable for the tax on that gift. If they do not pay it within the deadline, HMRC can look to the estate's personal representatives, which can shift the cost onto the residuary beneficiaries.
How does a gift reduce the nil-rate band for the estate?
Lifetime gifts within the seven years are set against the £325,000 band in chronological order. A large failed gift can absorb the whole band, leaving little or none of the standard nil-rate band to shelter the death estate — so the remaining estate is taxed at 40% on more of its value.
What is the inheritance tax nil-rate band in 2026?
The standard nil-rate band is £325,000, and the standard inheritance tax rate is 40%. A separate residence nil-rate band can raise the effective threshold up to £500,000 when a home is left to direct descendants. Always confirm the current figures on gov.uk. (gov.uk: Inheritance Tax)
If I survive 7 years, is the gift completely tax-free?
Yes. A potentially exempt transfer that survives seven full years falls outside your estate entirely and carries no inheritance tax — which is why the seven-year clock, not taper relief, is the real prize.