UK inheritance tax and lifetime gifts: locating the official conditions
Some gifts made during your lifetime can still face Inheritance Tax after you die. HMRC's guidance says that gifts made less than seven years before death may be taxed, depending on who received the gift, its value and when it was given. This article explains where the official conditions sit and what each one covers, so you know which questions to take to a solicitor or tax adviser.
What counts as a gift
The official guidance lists money, household and personal goods such as furniture, jewellery or antiques, a house, land or buildings, shares listed on the London Stock Exchange, and unlisted shares you held for less than two years before death.
A gift can also arise when you sell something for less than it is worth. If you sell your house to your child below its market value, the difference counts as a gift.
Anything left in your will does not count as a gift. It forms part of your estate, which means all the money, property and possessions you own when you die. HMRC uses the value of your estate to work out whether Inheritance Tax needs to be paid.
The seven year rule
The guidance says no tax is due on a gift if you live for seven years after giving it. This is known as the seven year rule. The exception is a gift that is part of a trust, which needs to be checked against HMRC's separate trust guidance.
If you die within seven years of giving a gift, and tax is due on it, the amount depends on when you made the gift:
- Gifts made in the three years before death are taxed at 40%.
- Gifts made three to seven years before death are taxed on a sliding scale called taper relief.
Taper relief only applies if the total value of gifts made in the seven years before death is over the £325,000 tax-free threshold. Where it applies, the rate falls the longer you survive after the gift:
| Years between gift and death | Rate of tax on the gift |
|---|---|
| 3 to 4 years | 32% |
| 4 to 5 years | 24% |
| 5 to 6 years | 16% |
| 6 to 7 years | 8% |
| 7 or more | 0% |
The table shows the official rates. Whether any of them apply to a particular gift depends on the total value of gifts and the other conditions set out in the guidance.
Gifts you still benefit from
If you give something away but keep benefiting from it, HMRC calls this a "gift with reservation". The guidance says such a gift still counts towards the value of your estate. Its examples include:
- giving your home to a relative but still living there
- giving away a caravan but still using it for free for your holidays
- giving away a valuable painting but still displaying it in your house
HMRC's separate guidance on working out Inheritance Tax due on gifts explains in more detail when these gifts count towards the estate.
Records and who pays
The person dealing with the estate needs to work out which gifts you made in the seven years before death. The guidance suggests keeping three types of record for each gift: what you gave and to whom, the value of the gift, and when you gave it.
Any Inheritance Tax due on gifts is usually paid by the estate. The exception is when you give away more than £325,000 in gifts in the seven years before death. In that case, anyone who received a gift from you in that period has to pay the tax on their own gift.
Residence rules from 6 April 2025
From 6 April 2025, the domicile and deemed domicile rules were replaced by long-term UK resident rules. If you are a long-term UK resident, your non-UK assets may be subject to Inheritance Tax when you make a transfer of assets or die.
The guidance says you are a long-term UK resident in a tax year if you have been tax resident in the UK for either:
- the previous 10 consecutive years, or
- a total of 10 years or more within the previous 20 years.
The guidance lists three circumstances in which you will not be a long-term UK resident:
- on 30 October 2024, you did not have UK domicile or deemed domicile status
- for the tax year 6 April 2025 to 5 April 2026, you are non-resident
- you do not return to the UK
The guidance also says not to follow the new residence guidance for transfers of assets or deaths that happened before 6 April 2025. Those cases fall under the earlier deemed domicile rules, which HMRC covers separately.
Where to check the official conditions
Read the official pages in this order to see how the rules fit together:
- the main gifts page, for the definition of a gift and the seven year rule
- the trust guidance, if any gift involved a trust
- the guidance on gifts with reservation, if you still use or benefit from anything you gave away
- the long-term residence guidance, if the question involves overseas assets
The guidance sets out the conditions but does not work out your tax position. For a decision on a specific gift, speak to a solicitor or a tax adviser.