Sunny Bharj
Independent Financial Adviser
Tony Springer
Independent Financial Adviser
Some gifts leave your estate the moment you make them. Others take seven years. Which is which decides what you should do first.
Giving money away is the simplest thing that reduces an inheritance tax bill, and it is the one people put off longest. Part of that is not wanting to part with the money. Part of it is a widespread belief that you can only give away £3,000 a year, which is not so.
There are exemptions that work immediately and have no upper limit at all, and there is a seven year clock for everything else.
gov.uk and HMRC Inheritance Tax Manual, checked 23 September 2026. 2026/27 thresholds.
Both bands are transferable between spouses and civil partners as a percentage of the band unused on the first death, which is where the £1,000,000 figure people have heard about comes from. It holds only where a qualifying home passes to direct descendants.
Anything not covered by an exemption is a potentially exempt transfer. Nothing is due at the time.
The gift falls out of your estate entirely and no inheritance tax arises on it.
The gift comes back into the calculation, and it uses up your nil rate band before the rest of your estate does.
Only where the gift itself exceeds the nil rate band. Gifts three to four years old attract 32% relief, four to five 24%, five to six 16%, six to seven 8%.
Taper relief does not reduce the value of a gift. It reduces the tax otherwise payable on it, so where the gift sits inside the nil rate band it provides nothing at all.HMRC, Inheritance Tax Manual
HMRC's own words are that taper relief does not reduce the capital value of the transfer. It reduces the tax otherwise payable on that gift.
The consequence catches people out. Where a gift sits inside the nil rate band there is no tax on it to reduce, so taper relief does nothing at all. Claiming a transferable nil rate band from a late spouse can wipe out the relief entirely. Surviving four years does not cut the bill on a £50,000 gift by a third, which is what a great deal of published guidance implies.
Yes. Up to £3,000 a year is exempt immediately, and there is no limit on gifts out of surplus income where the conditions are met. Anything else leaves your estate provided you survive seven years.
No. The limits apply to what is exempt straight away. You can give away any amount as a potentially exempt transfer, and it falls out of your estate after seven years.
Not income tax on the gift itself. Where you die within seven years and there is tax on the gift, the person who received it can be liable for it.
Not to any effect. Giving away an asset while continuing to benefit from it brings the gift with reservation of benefit rules into play, which generally keep it in your estate anyway, with a possible income tax charge on top.
Not at the time. Your executors have to report gifts made in the seven years before death, which is why keeping a record of what you gave and when matters a great deal.
Only if you are married or in a civil partnership and a qualifying home is passing to direct descendants. It is two nil rate bands of £325,000 and two residence bands of £175,000 added together, and it tapers away above a £2m estate.
Tax treatment depends on your individual circumstances and on current rules, both of which can change. The Financial Conduct Authority does not regulate tax advice, trusts or estate planning.
Yes. Some gifts are exempt immediately with no limit at all, and anything else leaves your estate after seven years.
Read the answer →Up to £175,000 extra, on top of the ordinary band, where a home you lived in passes to your children or grandchildren.
Read the answer →A gift leaves your estate completely if you survive seven years. Taper relief reduces the tax on it, not its value.
Read the answer →Independent Financial Adviser
Independent Financial Adviser
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