Inheritance Tax Gifts Calculator

Q: What gifts are exempt from inheritance tax?

Exempt gifts include: the annual exemption of £3,000 per year (can carry forward one year for £6,000), small gifts of up to £250 per person per year, wedding gifts (£5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else), gifts between spouses (fully exempt), and normal expenditure from income with no limit.

Q: How does taper relief work on gifts?

Taper relief reduces the rate of IHT charged on a gift, not the value of the gift. It only applies when total gifts in the 7 years before death exceed the nil-rate band (£325,000). The rate tapers from 40% at 0-3 years to 8% at 6-7 years. Gifts within the NRB are not taxed regardless of timing.

Q: What is the nil-rate band and residence nil-rate band?

The nil-rate band (NRB) is £325,000 for 2025/26 — the threshold below which no IHT is charged. The residence nil-rate band (RNRB) is an additional £175,000 when passing your home to direct descendants. Together, a single person can pass up to £500,000 tax-free; a married couple up to £1,000,000 using transferable bands.

Q: Can I give away my house to avoid inheritance tax?

You can gift your home, but if you continue to live in it, HMRC treats it as a 'gift with reservation of benefit' and it remains in your estate. To make it a genuine gift, you must move out completely or pay full market rent. You would also lose the RNRB (£175,000). Seek specialist advice before gifting property.

Check IHT on gifts using the 7-year taper rule, plan your annual exemptions, and compare estate tax before and after gifting. UK tax year 2025/26.

Check IHT liability on a gift using the 7-year taper rule

Gift amount

The total value of the gift

Years since gift

How long ago was the gift made?

Annual exemption already used this year?

Have you already used your £3,000 annual exemption?

Previous year's annual exemption used?

If unused, it can be carried forward for one year

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How to Use This Calculator

Gift Tax Check tab

Enter the gift amount, select how many years ago the gift was made, and indicate whether your annual exemption has already been used. The calculator shows the taxable amount after exemptions, the IHT due if the donor dies now, and a full taper relief schedule showing how the tax reduces over 7 years.

Exemptions Planner tab

Plan your annual tax-free gifting capacity. Toggle the annual exemption and carried-forward allowance, set the number of small gift recipients (£250 each), and optionally add a wedding gift. The calculator totals everything so you know exactly how much you can give tax-free each year.

7-Year Strategy tab

Compare IHT now vs after gifting. Enter your estate value, planned gift amount, and nil-rate bands. See the IHT saving if you survive 7 years, plus a breakdown of what happens if you die at each interval along the way.

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The Formula

IHT on gifts follows the 7-year rule with taper relief:

Taxable Gift = Gift Amount − Annual Exemption (£3,000 + £3,000 carried forward)

If donor dies within 7 years:
IHT on gift = Taxable Gift × Taper Rate

Taper rates:
0–3 years: 40% | 3–4 years: 32% | 4–5 years: 24%
5–6 years: 16% | 6–7 years: 8% | 7+ years: 0%

Estate IHT = (Estate Value − NRB − RNRB) × 40%
IHT Saved by Gifting = Estate IHT (before) − Estate IHT (after gift, 7+ years)

Taper relief only reduces the rate of tax on the gift itself, not the amount of the gift. If the gift falls within the nil-rate band, there is no IHT regardless of timing. The gift uses up the NRB first, potentially leaving less NRB available for the remaining estate.

The annual exemption (£3,000) and small gift exemption (£250 per person) are deducted before the gift becomes a Potentially Exempt Transfer (PET).

Example

Margaret — Retired Teacher, 72, Surrey

Margaret has an estate worth £600,000 (including her home valued at £350,000). She wants to gift £100,000 to her daughter to help with a house deposit. She has not used her annual exemption this year or last year.

Gift Tax Check tab

Gift amount£100,000

Years since gift0 (just given)

Annual exemption used?No

Previous year exemption used?No

Covered by exemptions£6,000

Taxable amount (PET)£94,000

IHT if dies now (40%)£37,600

IHT if dies at 4–5 years (24%)£22,560

IHT if survives 7+ years£0

If Margaret survives 7 years, the entire £100,000 gift is completely exempt from IHT. Her estate drops from £600,000 to £500,000, which is exactly covered by her NRB (£325,000) + RNRB (£175,000) = £0 IHT on the estate.

7-Year Strategy tab

Estate value£600,000

Gift amount£100,000

IHT without gifting£40,000

IHT after gifting + 7 years£0

Total IHT saved£40,000

By gifting £100,000 and surviving 7 years, Margaret eliminates her entire £40,000 IHT bill.

FAQ

What is the 7-year rule for inheritance tax gifts? ▼

The 7-year rule means that gifts made more than 7 years before your death are completely exempt from inheritance tax. Gifts made within 7 years of death are called Potentially Exempt Transfers (PETs) and may be subject to IHT. The tax rate reduces over time through taper relief: 40% for 0-3 years, 32% for 3-4 years, 24% for 4-5 years, 16% for 5-6 years, and 8% for 6-7 years. After 7 years, the rate is 0%.

What gifts are exempt from inheritance tax? ▼

Several types of gifts are immediately exempt from IHT: the annual exemption of £3,000 per year (can carry forward one year for £6,000 total), small gifts of up to £250 per person per year (unlimited recipients but not to the same person receiving the annual exemption), wedding gifts (£5,000 from a parent, £2,500 from a grandparent, £1,000 from anyone else), gifts between spouses (fully exempt, £325,000 limit for non-UK domiciled spouse), and normal expenditure from income (no limit, provided it is habitual and does not affect your standard of living).

How does taper relief work on gifts? ▼

Taper relief reduces the rate of IHT charged on a gift, not the value of the gift itself. It only applies when the total value of gifts made in the 7 years before death exceeds the nil-rate band (£325,000). The full 40% rate applies for gifts made 0-3 years before death. It then tapers: 32% at 3-4 years, 24% at 4-5 years, 16% at 5-6 years, and 8% at 6-7 years. Importantly, the gift must first exceed the NRB for taper relief to have any effect — small gifts within the NRB are not taxed regardless.

What is the nil-rate band and residence nil-rate band? ▼

The nil-rate band (NRB) is the threshold below which no IHT is charged. For 2025/26 it is £325,000 (frozen since 2009). The residence nil-rate band (RNRB) is an additional £175,000 allowance that applies when you pass your home to direct descendants (children, grandchildren, adopted children). The RNRB tapers for estates over £2 million, reducing by £1 for every £2 above £2M. Together, a single person can pass up to £500,000 tax-free; a married couple can pass up to £1,000,000 using transferable nil-rate bands.

Can I give away my house to avoid inheritance tax? ▼

You can gift your home, but there are important caveats. If you give your home away but continue to live in it, HMRC treats it as a “gift with reservation of benefit” (GROB) and it remains part of your estate for IHT purposes. To make it a genuine gift, you must either move out completely or pay a full market rent. If you give away your home and survive 7 years without living in it, it becomes exempt. However, you would lose your RNRB (£175,000), since that only applies to a home in your estate passed to descendants. Seek specialist advice before gifting property.

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