Filling In IHT403 (Gifts): A Worked Example with the 7-Year Rule and £3,000 Annual Exemption
To fill in IHT403, list every gift the deceased made in the seven years before death with its date, recipient and value, then in the next column note which exemption applies — usually the £3,000 annual exemption, the £250 small-gifts exemption, or a wedding-gift exemption. The chargeable balance feeds into the seven-year cumulation total on the IHT400, where the nil-rate band and any taper relief are applied. Taper relief is not worked out on IHT403 itself.
Below I walk through a real-shaped example so you can see exactly what goes in which box. All thresholds and exemption amounts are taken from the current GOV.UK guidance (Inheritance Tax: gifts), and the form structure follows the official IHT403 notes.
What IHT403 is for
IHT403 is the schedule of gifts and other transfers of value that you submit alongside the main IHT400 account. You complete it when the deceased gave away cash, property, shares or other assets — generally on or after 18 March 1986. The main part of the form is a table of gifts made within the seven years before death, with columns for the date, who received the gift, a description, the value, and the type of exemption or relief claimed.
The exemptions you'll be claiming (current figures)
These are the lifetime gift exemptions you apply on IHT403. The amounts come straight from GOV.UK.
| Exemption | Amount | Key rule |
|---|---|---|
| Annual exemption | £3,000 per tax year | One unused year can be carried forward (so up to £6,000 in a year if last year's was unused). |
| Small gifts exemption | £250 per person, per year | Unlimited recipients — but cannot be combined with another exemption on the same person. |
| Wedding / civil partnership gift | £5,000 to a child; £2,500 to a grandchild/great-grandchild; £1,000 to anyone else | Must be given on or shortly before the wedding/ceremony. |
| Normal expenditure out of income | No fixed limit | Must be regular, paid from income, and leave the deceased able to maintain their usual standard of living. |
Source: GOV.UK — Inheritance Tax: gifts.
Worked example: Margaret's gifts
Worked example
Margaret Whitfield died on 10 April 2026. In the seven years before death she made these gifts:
- £100,000 cash to her daughter Sarah on 1 June 2023 (a deposit for a house).
- £3,000 to her son James on his birthday, 5 May 2024.
- £3,000 to James again on his birthday, 5 May 2025.
Margaret had used none of her annual exemption in the 2022/23 tax year, so when she made the £100,000 gift in June 2023 (the 2023/24 tax year) she could use that year's £3,000 plus the £3,000 carried forward from 2022/23.
Step 1 — The £100,000 gift to Sarah (1 June 2023):
- Value of gift: £100,000
- Less 2023/24 annual exemption: −£3,000
- Less 2022/23 annual exemption carried forward: −£3,000
- Chargeable potentially exempt transfer (PET): £94,000
On IHT403 you write the gift date (01/06/2023), recipient (Sarah, daughter), a description ("cash gift"), the value (£100,000), and in the exemption column note "annual exemption 2023/24 £3,000 + carried forward 2022/23 £3,000 = £6,000". The £94,000 is the chargeable figure.
Step 2 — The two £3,000 birthday gifts to James:
- 5 May 2024: £3,000 — covered by the 2024/25 annual exemption → chargeable nil.
- 5 May 2025: £3,000 — covered by the 2025/26 annual exemption → chargeable nil.
Each year's £3,000 annual exemption was already used in full by the May birthday gift, so James's gifts wash out to zero. (Note: because the £3,000 annual exemption was used on James, you could not also claim the £250 small gifts exemption on him in those years.)
How the gifts appear in the IHT403 table
| Date | Recipient | Description | Value | Exemption claimed | Chargeable |
|---|---|---|---|---|---|
| 01/06/2023 | Sarah (daughter) | Cash | £100,000 | Annual exemption £3,000 + carried forward £3,000 | £94,000 |
| 05/05/2024 | James (son) | Cash (birthday) | £3,000 | Annual exemption 2024/25 | £0 |
| 05/05/2025 | James (son) | Cash (birthday) | £3,000 | Annual exemption 2025/26 | £0 |
If a wedding had been in the mix
Suppose Margaret had also given Sarah £5,000 specifically for her wedding. As a gift to a child in consideration of marriage, the first £5,000 is exempt. You would record the gift, then claim "marriage/civil partnership gift exemption — £5,000 (child)" in the exemption column. If the wedding gift had been £8,000, only £5,000 is exempt under that relief and you would consider the annual exemption (if not already used) against the remaining £3,000. The point on the form is the same: show the gross gift, then show each exemption you apply.
The gifts-out-of-surplus-income table
If the deceased made regular gifts from income — say £500 a month to a grandchild's school fees — these can be fully exempt under the "normal expenditure out of income" rule, with no upper limit, provided three things are true: the gifts formed a settled pattern, they came from income rather than capital, and after making them the deceased could still maintain their usual standard of living.
IHT403 contains a dedicated income and expenditure table for this. For each relevant year you set out, in broad terms:
| Row | What goes here |
|---|---|
| Income | Pensions, employment/self-employment income, interest, dividends, rental income — by source, per year. |
| Expenditure | Usual living costs: mortgage/rent, utilities, council tax, food, insurance, holidays, day-to-day spending. |
| Gifts made | The regular gifts you are claiming as out of income. |
| Surplus | Income minus expenditure minus gifts — this should be positive (or at least the gifts should come from genuine surplus). |
Evidence HMRC expects: bank and building society statements showing the regular payments, pension and investment income records, and ideally a note (or letter of wishes) from the deceased setting out the intention to make habitual gifts from income. HMRC scrutinises this relief closely, so the cleaner your income/expenditure breakdown and the clearer the pattern, the smoother it goes. See GOV.UK — gifts from income.
Where the 7-year cumulation total goes
The chargeable gifts on IHT403 don't generate tax on the form itself. Their total — in Margaret's case £94,000 — becomes the seven-year cumulation total that carries into the IHT400 calculation. There, the chargeable gifts are set against the deceased's nil-rate band first, before the rest of the estate.
The current nil-rate band is £325,000, and IHT above it is charged at 40% (source: GOV.UK — Inheritance Tax). So Margaret's £94,000 of chargeable gifts uses up the first £94,000 of her £325,000 band, leaving £231,000 of nil-rate band available for the rest of her estate. That is the mechanism by which lifetime gifts "reduce the available nil-rate band."
(A residence nil-rate band of up to £175,000 may also be available where a home passes to direct descendants, taking the combined threshold up to £500,000 — but it is applied in the IHT400, not on IHT403.)
Taper relief is noted later, not on IHT403
People often expect to calculate taper relief on the gifts form. You don't. IHT403 only records the gift and its date. Taper relief is applied in the IHT400 calculation, and only ever reduces the tax on a failed gift, never the value of the gift or the amount of nil-rate band it uses.
Taper relief only bites once a gift's value exceeds the nil-rate band and tax is actually due. The reductions to the tax are:
| Years between gift and death | Taper — tax reduced by |
|---|---|
| Less than 3 years | 0% (full 40% applies) |
| 3 to 4 years | 20% (effective rate 32%) |
| 4 to 5 years | 40% (effective rate 24%) |
| 5 to 6 years | 60% (effective rate 16%) |
| 6 to 7 years | 80% (effective rate 8%) |
Source: GOV.UK — taper relief. In Margaret's case her £94,000 sits entirely within the nil-rate band, so no tax is due on the gift and taper relief is irrelevant — but you still record the gift on IHT403 because it reduces the band available to the estate.
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Frequently asked questions
Do I list gifts on IHT403 before or after exemptions?
List the full value you gave in the value column, then show the exemption you are claiming in the "type of exemption or relief" column. The form lets you show the gift and the relief separately so HMRC can see how you arrived at the chargeable figure. The net chargeable amount is what carries forward into the IHT400 calculation.
Can I use the £3,000 annual exemption and the £250 small gifts exemption on the same person?
No. GOV.UK is explicit: you can give as many £250 gifts as you like to different people each year, but only as long as you have not used another allowance on that same person. So you cannot combine the £3,000 annual exemption and the £250 small gifts exemption for one recipient in the same tax year.
How far back do I need to go when listing gifts on IHT403?
The seven-year rule means outright gifts (potentially exempt transfers) made more than seven years before death usually fall away. But you must list gifts going back further if they were gifts with reservation of benefit or affect failed PETs, and you should record any gift you are claiming the gifts-out-of-income exemption for. When in doubt, list it and note the exemption.
Where does taper relief go on IHT403?
Taper relief is not calculated on IHT403 itself. IHT403 simply records the gifts and dates. Taper relief reduces the tax on a failed gift made between three and seven years before death, and it is applied later in the IHT400 calculation. It only ever reduces tax, never the value of the gift.
What evidence does HMRC want for gifts out of surplus income?
HMRC expects to see that the gifts were habitual, paid from income (not capital), and that the deceased was left with enough income to maintain their usual standard of living. The IHT403 income and expenditure table asks you to break down income and outgoings for the relevant years; you support it with bank statements, pension and investment income records, and a note of the regular gifting pattern.
General information, not personal United Kingdom tax/legal advice. Verify with a qualified professional.
Sources: GOV.UK — Inheritance Tax: gifts · GOV.UK — Inheritance Tax · GOV.UK — IHT403. Figures current as at 2026-06-03.