what are the 7 rules in inheritance tax

Introduction Inheritance Tax in the United Kingdom:

In the realm of Inheritance Tax (IHT) in the UK, knowledge is not just power; it’s the key to ensuring your hard-earned assets are passed on smoothly. At JK Accountancy, we recognize the importance of staying well-versed in the intricacies of IHT. In this blog, we delve into the heart of the matter: the 7-year rule, exploring what it entails and how it can impact your estate planning.

Understanding the 7-Year Rule in Inheritance Tax:

The 7-year rule is a beacon of relief for those engaging in lifetime gifting. A potentially exempt transfer is made when an individual gifts assets, excluding relief such as the annual exemption of £3,000 or those deemed surplus income. Surviving seven years from the date of the gift ensures that the amount falls outside the estate for IHT purposes. However, should the donor pass away within this period, reduced IHT rates come into play, varying based on the number of years since the gift.

Reduced IHT Rates:

  • Within 3 years: 40%
  • 3 to 4 years: 32%
  • 4 to 5 years: 24%
  • 5 to 6 years: 16%
  • 6 to 7 years: 8%
  • 7 years or more: 0%

Common Mistakes to Avoid in Inheritance Tax in the UK:

Navigating the complexities of IHT demands vigilance. One common error arises when reduced IHT rates apply only to potentially exempt transfers exceeding the nil rate band (£325,000). Gifting non-cash assets, such as a buy-to-let property, may trigger Capital Gains Tax and Stamp Duty Land Tax implications. Being mindful of these interactions is crucial for effective estate planning.

Three Strategies for Success Inheritance Tax UK:

  1. Strategic Gifting within Couples: Consider having the healthier or younger spouse make the gift, increasing the likelihood of surviving the 7-year period. Alternatively, both spouses can share the gifting responsibility, ensuring a higher chance that at least part of the gifted amount falls outside their estates for IHT purposes.
  2. Gift Inter Vivos Insurance: Mitigate the risk of unforeseen circumstances with a ‘gift inter vivos’ insurance policy. This annual premium covers the IHT payable on the gift if the donor does not survive seven years. Executors gain peace of mind, ensuring liquidity to settle the IHT bill without unnecessary complications.
  3. Maintain Clear Gift Records: Keeping meticulous records of gifts simplifies estate management. As Daniel Tomassen, Senior Manager at JK Accountancy, emphasizes, clear records ease the calculation of IHT payable and meet HMRC deadlines, minimizing the risk of late payment interest and penalties.


In the dynamic landscape of Inheritance Tax, staying informed is paramount. The 7-year rule offers a valuable strategy for effective estate planning, but pitfalls abound. At JK Accountant, our expertise ensures you navigate these intricacies with confidence. If you seek personalized advice tailored to your circumstances, don’t hesitate to get in touch. Your financial future deserves nothing less than meticulous attention.

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