The 7-Year Rule: What You Need to Know

1. What is the 7-Year Rule?

The 7-year rule relates to potentially exempt transfers (PETs). If you give away an asset or money as a gift and survive for 7 years from the date of the gift, it is no longer included in your estate for inheritance tax purposes.

2. How Potentially Exempt Transfers Work

When you make a gift, it is a PET. It falls outside your estate immediately, but if you pass away within 7 years, the value may still be subject to IHT depending on how long you survived.

• 0–3 years: 40% tax may apply
• 3–4 years: 32% tax may apply
• 4–5 years: 24% tax may apply
• 5–6 years: 16% tax may apply
• 6–7 years: 8% tax may apply
• 7+ years: No IHT payable

3. Important Things to Consider

Gifts must be outright, with no continued benefit to you. If you retain use of the gifted asset — for example, gifting your home but continuing to live in it rent-free — it remains part of your estate for IHT.

4. How to Use the 7-Year Rule Effectively

The earlier you plan, the more options you have. Consider gifting in stages, using annual exemptions, and keeping clear records of all transfers.

5. Get Expert Advice

Everyone's circumstances are different. Getting professional advice ensures your gifting strategy is tax-efficient and aligns with your wider estate plan.

Frequently Asked Questions