The seven-year rule is one of the most widely referenced aspects of Inheritance Tax, but also one of the most commonly misunderstood.
What the seven-year rule means
When a person makes a gift during their lifetime that does not qualify for a specific IHT exemption, that gift is called a potentially exempt transfer (PET). If the person lives for at least seven full years after making the gift, the gift falls completely outside the estate for IHT purposes. If the person dies within seven years, the gift may be brought back into the IHT calculation.
Taper relief
Where a taxable gift was made more than three years before death, taper relief reduces the IHT applicable to that gift on a sliding scale. However, taper relief applies to the tax on the gift, not to the gift’s value, and only becomes relevant where the gift exceeds the available nil rate band.
What executors need to do
As executor, you must declare all gifts made by the deceased in the seven years before death on the IHT403 schedule. This means tracing the deceased’s financial history and establishing what was given, to whom, on what date, and for what value.
YouCanDoProbate includes a structured gifts section in the platform walkthrough. You enter the details of each gift and the platform applies the seven-year rule, the appropriate exemptions, and taper relief (where relevant) automatically.
