Form IHT403 Worked Example: Listing 7 Years of Gifts and Calculating Taper Relief
Form IHT403 is the schedule where you list every gift the deceased made in the 7 years before death (and certain earlier ones). You complete the gift table column by column — date, recipient, description, value and the exemptions used — then the total carries to box 4 of form IHT400. Taper relief, where it applies, reduces the tax on a gift, not the gift's value, and only ever after the cumulative gifts have eaten through the £325,000 nil-rate band. This worked example walks through all of it with real figures.
What IHT403 is and when you need it
IHT403 (“Gifts and other transfers of value”) is a supplementary schedule to the main inheritance tax account, form IHT400. You file it when the deceased made gifts or transferred value — for example giving away cash, property, or shares — on or after 18 March 1986, and you need to report them. In practice you almost always need it for any gift made in the 7 years before death that isn't fully covered by an exemption, plus gifts that reserved a benefit (such as giving away the family home but continuing to live in it rent-free).
The form does two jobs. First, it captures the facts of each gift so HMRC can build the deceased's cumulative total. Second, it lets you claim the exemptions that reduce or remove the value brought into the estate — the annual exemption, small-gift exemption, wedding gifts and, crucially, gifts out of normal income. Get the exemptions right on IHT403 and the figure that lands in the estate can be far smaller than the headline gift amounts.
Download the current version of IHT403 directly from GOV.UK — the form is updated periodically (the latest substantive update was April 2026), and old PDFs circulate online. Use the official page: Inheritance Tax: gifts and other transfers of value (IHT403).
Which columns to complete on the gift schedule
The heart of IHT403 is the gifts table. Each gift gets one row, and you work left to right across these columns:
| Column | What goes in it | Tip |
|---|---|---|
| Date of gift | The exact date the gift was made (DD/MM/YYYY). | This date drives the 7-year clock and any taper relief band. |
| Name & relationship of recipient | Who received it, e.g. “Sarah Bennett (daughter)”. | Relationship matters for wedding-gift exemptions. |
| Description of gift | What was given — “cash”, “50 shares in X Ltd”, “flat at 12 Elm Rd”. | For assets that change in value, describe the asset, not just a number. |
| Value at date of gift | The market value when the gift was made, after any co-ownership or loss-to-estate adjustment. | For chargeable lifetime transfers, use the transfer of value, not the cash handed over. |
| Exemption or relief claimed | The type of exemption (annual £3,000, small gift £250, wedding, normal expenditure out of income, spouse) and the amount. | Name the exemption explicitly — HMRC won't assume it. |
| Net value after exemptions | The value brought into the cumulation after exemptions are deducted. | This is the figure that uses up the nil-rate band. |
You complete one table for gifts that are exempt under the annual/small/wedding allowances or normal expenditure, and you also use IHT403 to detail gifts with reservation and certain other lifetime transfers in their own sections. The net values feed into the running cumulative total at the foot of the schedule.
The exemptions you apply on the schedule
Before any gift counts against the estate, you strip out the exemptions. The main ones, with figures verified against GOV.UK:
- Annual exemption — £3,000 per tax year. Any unused portion can be carried forward one tax year only, so a person who used none last year can have up to £6,000 available this year (this year's £3,000 plus last year's £3,000).
- Small-gift exemption — £250 per recipient per tax year. You can give £250 to as many different people as you like, but it cannot be combined with another exemption for the same person. If a gift to someone exceeds £250, the £250 small-gift exemption is lost entirely for that gift — you can't use it on the first £250.
- Wedding/civil-partnership gifts. £5,000 if from a parent, £2,500 from a grandparent or great-grandparent, £1,000 from anyone else — tied to a specific marriage.
- Normal expenditure out of income — no monetary limit, covered in its own section below.
- Spouse/civil-partner exemption — unlimited transfers to a UK-domiciled spouse or civil partner.
The £200,000 gift — Margaret Hollis, who died 5 years and 2 months after a large cash gift.
Margaret gave her son James £200,000 in cash on 3 March 2021. She had made no other gifts that year or the year before, and she died on 10 May 2026 — 5 years and just over 2 months later. This was a potentially exempt transfer (PET): because she didn't survive a full 7 years, it becomes chargeable and must be reported on IHT403.
Step 1 — apply the annual exemption on the schedule. Margaret had her current-year £3,000 and the prior year's unused £3,000 to carry forward. So £6,000 comes off:
£200,000 − £3,000 (2020/21) − £3,000 (2019/20 carried forward) = £194,000 net transfer.
On the schedule, the “value at date of gift” column reads £200,000, the exemption column reads “Annual exemption £3,000 + £3,000 brought forward,” and the net column reads £194,000.
Step 2 — the nil-rate band is used first. When HMRC works out the tax on this failed PET, the £325,000 nil-rate band (NRB) is set against the deceased's gifts in date order. Margaret made no chargeable gifts in the 7 years before this one, so the full £325,000 NRB is available. Her £194,000 net gift sits entirely within the £325,000 band.
Step 3 — result: no tax on the gift, and no taper relief. Because the £194,000 falls wholly inside the nil-rate band, the tax on the gift is £0. This is the single most misunderstood point on IHT403: taper relief only reduces tax that is actually due. Since no tax is due on this gift, the 16% taper band for 5–6-year-old gifts is irrelevant — 16% of nothing is nothing.
Step 4 — the knock-on effect on the estate. The £194,000 isn't taxed, but it does use up £194,000 of the £325,000 nil-rate band. So when Margaret's death estate is valued, only the remaining £131,000 of nil-rate band is left to set against everything she owned at death. That's the real cost of the gift — not tax on the gift itself, but a smaller band shielding the rest of the estate.
To show how taper relief would bite, change one fact: suppose Margaret had already used £250,000 of her NRB on an earlier 2019 gift. Then her £194,000 March-2021 gift would fall £119,000 over the band (only £75,000 of NRB left), and tax would be due on that £119,000 at 40% = £47,600. Now taper relief applies: at 5–6 years the rate is cut by 60%, leaving 40% of the tax payable, so £47,600 × 40% = £19,040. The taper relief table is below.
| Years between gift and death | Taper relief (reduction of tax) | Effective rate on the taxable gift |
|---|---|---|
| 0 to 3 years | None | 40% |
| 3 to 4 years | 20% | 32% |
| 4 to 5 years | 40% | 24% |
| 5 to 6 years | 60% | 16% |
| 6 to 7 years | 80% | 8% |
Source: GOV.UK — How Inheritance Tax on a gift is paid. Taper relief applies only to the part of a gift that is above the nil-rate band.
Completing the ‘gifts out of normal expenditure out of income’ section
This is the section that saves estates the most money and is filled in the worst. To qualify, a gift must meet three tests at once: it was made out of income (not capital), it formed part of the deceased's normal/regular pattern of giving, and after making it the deceased was left with enough income to maintain their usual standard of living. There is no upper limit on the amount — a gift of £20,000 a year can qualify if it genuinely came from surplus income.
IHT403 asks you to prove this with an income-and-expenditure table for each year of gifting. You list income received, normal living expenditure, and the gifts, year by year, to show a consistent surplus. Here's how that table looks for a typical case:
Arthur Vale — £12,000 a year to a granddaughter, claimed as normal expenditure out of income. Arthur, a retired engineer with a generous final-salary pension, gave his granddaughter £1,000 a month for three years toward university and rent. The executors claim the normal-expenditure exemption on IHT403. The schedule's income/expenditure table for one year:
| Income & expenditure (2025/26) | Amount |
|---|---|
| Net pension income | £46,000 |
| State pension | £11,500 |
| Investment income (dividends/interest) | £4,000 |
| Total income | £61,500 |
| Normal living costs (housing, food, bills, leisure) | £34,000 |
| Gifts to granddaughter | £12,000 |
| Surplus retained | £15,500 |
Because the £12,000 came out of an income surplus, was paid on a regular monthly pattern, and left Arthur comfortably able to maintain his lifestyle, the full £12,000 each year is exempt. On IHT403 these gifts are recorded in the normal-expenditure section with the table above repeated for each year, and the net value brought into the estate is £0 — not even the annual exemption needs to be used.
Two practical points. Keep bank statements and a note of the deceased's regular outgoings — HMRC frequently queries this exemption and the burden is on the estate to show income (not capital) funded the gifts. And don't double-claim: a gift exempted as normal expenditure out of income shouldn't also have the annual exemption applied to it.
Where the IHT403 figures carry to IHT400
Once the gift schedule is complete, the chargeable totals flow back to the main account. The cumulative net value of gifts (after exemptions) that fall within the relevant period is carried to box 4 of form IHT400 — the box for “gifts and other transfers of value”. From there it joins the rest of the estate in the IHT400 calculation, where it consumes the nil-rate band before the death estate does.
The practical sequence on the forms is: complete the IHT403 gift rows and exemptions → total the net chargeable gifts → copy that total to IHT400 box 4 → the IHT400 calculation (and the IHT400 Calculation pages, if you're working out the tax yourself) applies the nil-rate band to the gifts first, then to the death estate, and applies taper relief only to any tax arising on the gifts. Always check the box references against the version of IHT400 you're filing, as HMRC occasionally renumbers.
- List every reportable gift on IHT403 with its date, recipient, description, value, and the exemption claimed — HMRC won't apply exemptions you don't name.
- The nil-rate band (£325,000, frozen until 5 April 2031) is set against gifts in date order first; a gift inside the band attracts no tax.
- Taper relief reduces the tax on a gift, not the gift's value, and only ever applies to the part of a gift above the nil-rate band — so a gift within the band gets no taper benefit.
- Use the annual exemption (£3,000, plus one year's carry-forward) and small-gift exemption (£250 per person) before cumulating; normal expenditure out of income has no limit but needs an income/expenditure table.
- The net chargeable gift total from IHT403 carries to box 4 of IHT400.
Sources
- GOV.UK — Inheritance Tax on gifts (7-year rule, taper relief, annual/small/wedding exemptions, normal expenditure out of income)
- GOV.UK — Inheritance Tax (40% standard rate, £325,000 threshold)
- GOV.UK — Inheritance Tax thresholds and interest rates (NRB £325,000 frozen to 5 April 2031)
- GOV.UK — Form IHT403
Frequently asked questions
Does taper relief reduce a £200,000 gift if death was 5 years later?
Not necessarily. Taper relief only reduces the tax on a gift, and tax only arises on the part of a gift that exceeds the nil-rate band. A £200,000 gift (about £194,000 after the annual exemptions) sits entirely within the £325,000 band when no earlier gifts have used it, so there is no tax and therefore nothing for taper relief to reduce. The 16% taper band for 5–6-year-old gifts only matters once a gift pushes above the available nil-rate band.
What columns do I complete on the IHT403 gift schedule?
For each gift: the date it was made, the recipient's name and relationship, a description of what was given, its value at the date of gift, the type and amount of any exemption or relief claimed, and the net value after exemptions. The net values are then cumulated at the foot of the schedule.
How much annual exemption can I claim on a single gift?
Up to £3,000 for the tax year of the gift, plus up to £3,000 carried forward from the previous tax year if it was unused — a maximum of £6,000 against one gift. The carry-forward is one year only; you cannot stockpile several years of unused allowance.
What does the ‘normal expenditure out of income’ section need?
An income-and-expenditure table for each year of gifting, showing the deceased's income, normal living costs, and the gifts, to demonstrate that the gifts came from surplus income, formed a regular pattern, and left the deceased able to maintain their usual standard of living. There is no monetary cap, but keep bank statements as evidence — HMRC often queries this exemption.
Where does the IHT403 total go on IHT400?
The cumulative net value of chargeable gifts (after exemptions) carries to box 4 of form IHT400, “gifts and other transfers of value”, where it joins the rest of the estate and uses up the nil-rate band before the death estate does.
Do small £250 gifts go on IHT403?
Gifts fully covered by the £250 small-gift exemption are exempt, but it's good practice to list regular or notable gifts on the schedule and show the exemption claimed so HMRC can see they were considered. Remember the £250 exemption is all-or-nothing per recipient and can't be combined with another exemption for the same person.
Get the free IHT403 gifts checklist
A one-page checklist of every column, exemption and figure to gather before you start the gift schedule.
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