Gift Tax Calculator UK 2025/26 — The Seven-Year Rule, Taper Relief & Annual Exemptions
Giving away assets during your lifetime can reduce your inheritance tax bill — but only if you survive for 7 years after making the gift. Gifts made within 7 years of death are called Potentially Exempt Transfers (PETs) and can still be subject to IHT. This calculator works out the IHT exposure on gifts and how taper relief reduces the charge the longer you survive.
IHT nil rate band 2025/26: £325,000 (frozen until April 2030). Annual gift exemption: £3,000/year (plus £3,000 unused from previous year). Taper relief reduces IHT rate (not the value charged) after 3 years. Gift with reservation of benefit: property given away but still used by donor remains in estate. Always take specialist IHT advice before large gifting programmes.
Taper Relief Rates — 2025/26
| Years between gift and death | Taper reduction | IHT rate applied |
|---|---|---|
| 0–3 years | 0% | 40% (full rate) |
| 3–4 years | 20% | 32% |
| 4–5 years | 40% | 24% |
| 5–6 years | 60% | 16% |
| 6–7 years | 80% | 8% |
| 7+ years | 100% | 0% — fully exempt |
Important caveat: taper relief only applies where the PET is chargeable (i.e. the gift exceeds the available nil rate band). If your estate (including earlier gifts) stays within the nil rate band, taper relief is irrelevant because no IHT would be due anyway.
IHT Exemptions for Gifts
| Exemption | Amount | Notes |
|---|---|---|
| Annual exemption | £3,000/year | Can carry forward 1 year’s unused amount |
| Small gifts | £250/person/year | To any number of people (cannot combine with annual exemption for same person) |
| Spouse/civil partner | Unlimited | Fully exempt, plus unused NRB can pass to survivor |
| Charity | Unlimited | Also reduces IHT rate from 40% to 36% on rest of estate if 10%+ left to charity |
| Wedding/civil partnership | Parent: £5,000; Grandparent: £2,500; Other: £1,000 | Must be made on or shortly before the wedding |
| Normal expenditure from income | Unlimited | Regular payments out of surplus income; must not reduce standard of living |
Gifting Property — Special Warnings
Property is the most complex asset to gift for IHT purposes. Key considerations:
- Gift with reservation — if you give your home to your children but continue living in it rent-free (or below market rent), the property remains in your estate as if you never gave it away. HMRC applies the ‘associated operations’ rule aggressively in this area.
- Capital Gains Tax — gifting an asset other than cash triggers CGT as if you sold it at market value. You use your CGT annual exemption (£3,000 in 2025/26), but a gain beyond this is taxable. For residential property, this is particularly significant.
- Stamp Duty Land Tax — if the property has a mortgage, the recipient taking over the mortgage triggers SDLT even on a gift.
Frequently Asked Questions
Primarily the recipient of the gift (the donee). The IHT charge on a PET falls on the donee, not the estate. However, if the donee cannot pay (e.g. has spent the money), HMRC can recover the tax from the estate. This means the estate may need to fund the IHT on gifts made by the deceased, even though those gifts were already given away — a cashflow issue executors need to plan for.
Each gift has its own 7-year period running from the date it was made. Gifts are cumulative — earlier gifts use up the nil rate band before later gifts. The nil rate band available against a PET is reduced by any chargeable transfers made in the 7 years before that PET. This means the order in which gifts are made can significantly affect how much IHT is due if death occurs within 7 years of any gift.