The seven-year clock is the IHT mitigation that almost every landlord with an exposure problem reaches for first. It is also widely misunderstood: most articles conflate taper relief with gift-value reduction, treat all lifetime gifts as PETs, and gloss over the practical implication that taper rarely helps a moderate gift that stays within the donor's nil-rate band. This page sets out the mechanics properly: the distinction between Potentially Exempt Transfers (outright gifts to individuals) and Chargeable Lifetime Transfers (gifts into most trusts), the s.7(4) IHTA 1984 taper schedule between years 3 and 7, the small but reliable exemptions (£3,000 annual, £250 small gifts, the wedding bands), and worked examples on a £350,000 BTL outright gift and a £600,000 home gifted into a discretionary trust.
For the planning context (how the 7-year clock fits within the wider mitigation menu), see the IHT Decision Framework for UK Landlords. For the trap that voids the 7-year clock entirely (gift the home, keep living there), see Gifts with Reservation of Benefit. For the CGT side of any property gift, the companion is CGT on Gifting Property to Family Members.
The seven-year clock in one paragraph
A lifetime gift of property to an individual is a Potentially Exempt Transfer. No IHT is payable at the time of the gift. The gift becomes fully exempt for IHT if the donor survives seven complete years from the date of the gift. If the donor dies within seven years, the gift "fails" and comes back into the estate at its value at the date of the gift (not the date of death, which is the standard mistake), against the donor's nil-rate band available at the time of the gift. Tax is payable at the full IHT rate (40%) on any excess above the NRB, but the rate is tapered between years 3 and 7 under s.7(4) IHTA 1984. The clock starts on the date the legal transfer is completed (typically the date of registration at HMLR for property gifts), not on the date the deed of gift was signed.
PETs vs CLTs: the structural difference for property gifts
The classification of the gift drives the entire downstream calculation.
Potentially Exempt Transfer (PET). An outright gift from one individual to another individual. The most common case for property gifts: parent transfers legal title to a child, the child takes ownership and receives any future rents directly. No immediate IHT charge. Full exemption on seven-year survival. Failed PETs (death within 7 years) come back into the estate at gift-date value, subject to taper relief.
Chargeable Lifetime Transfer (CLT). A gift into most trusts: discretionary trusts, most lifetime interest in possession trusts, relevant property trusts. Immediate IHT at 20% on the amount over the donor's available NRB. The 20% is half the death rate of 40% and reflects the IHT regime's structural balance between lifetime and death taxation. Failed CLTs (death within 7 years) may trigger a top-up to the death rate of 40%, again tapered, with the 20% lifetime IHT already paid offset against the top-up. CLTs also trigger ongoing trust charges: a periodic charge of up to 6% every ten years on trust assets above the NRB, and exit charges when capital leaves the trust.
| Feature | PET | CLT |
|---|---|---|
| Recipient | Individual | Trust (most types) |
| Immediate IHT | None | 20% on excess over NRB |
| Effect of 7-year survival | Fully exempt | Lifetime tax stays, no top-up |
| Effect of death within 7 years | Gift back into estate, tapered | Top-up to 40% rate, tapered, less 20% lifetime tax already paid |
| Reporting at time of gift | None (executors report on IHT403 at death) | IHT100 within 12 months of end of month of transfer |
| Ongoing trust charges | n/a | 10-yearly periodic (up to 6%), exit charges |
The s.7(4) taper relief schedule
The literal statutory schedule. The percentage shown is the proportion of the full-rate IHT that remains payable. Where the percentage is 100, the full rate applies. The taper applies to the IHT, not to the gift value.
| Years between gift and death | % of full rate payable | Effective rate (where 40% applies) |
|---|---|---|
| 0 to 3 | 100% | 40% |
| 3 to 4 | 80% | 32% |
| 4 to 5 | 60% | 24% |
| 5 to 6 | 40% | 16% |
| 6 to 7 | 20% | 8% |
| 7+ | 0% | 0% (gift fully exempt) |
One nuance from s.7(5): taper does not apply where it would produce a tax bill lower than the tax that would have been due had the transferor not died within seven years. The provision rarely bites in PET cases (no tax was due in the alive scenario) but does affect CLT top-up calculations.
Why taper does not help if your gift stays within the NRB
The single most-misunderstood point. Taper relief reduces the tax on the gift, not the value of the gift. Where the gift's chargeable element (gift value less available NRB at time of gift) is zero or negative, the tax is zero. Taper applied to zero is still zero. So a donor with no prior gifts who makes a single £300,000 PET produces zero tax whether the donor dies after 3 years or after 6.5 years. The seven-year clock is not doing meaningful work in that scenario for IHT purposes; the gift is within the NRB and would have been NRB-covered at death as well.
Taper bites only where the cumulative gift value exceeds the donor's available NRB. The practical consequence: small-to-moderate gifts (£50k, £100k, even £250k as a single PET from a donor with no prior cumulation) effectively benefit from the 7-year exemption fully, but get no taper effect because there was no tax to taper in the first place. The taper schedule matters for gifts above the £325k NRB, or for cumulative gift trains, or for CLTs above the NRB.
The exemptions you stack on top of the seven-year clock
Several lifetime-gift exemptions sit alongside the PET/CLT regime. Each is small individually but compounds usefully over years.
- Annual exemption: £3,000 per donor per tax year. Applies automatically to the first £3,000 of lifetime gifts each year. One year's unused exemption can be carried forward; older unused exemption is lost. A couple has £6,000 a year between them. Over 20 years of using both, that's £120,000 banked at zero IHT cost, with no 7-year clock needed.
- Small-gifts exemption: £250 per donee per tax year. Separate from the £3,000 (different recipients). Useful for spreading small gifts across a wide family circle. Cannot be combined with the £3,000 for the same recipient.
- Wedding / civil partnership gifts: £5,000 from a parent of the couple, £2,500 from a grandparent or other relative who is a party to the marriage, £1,000 from anyone else. The gift must be made before the ceremony.
- Normal expenditure out of income: Gifts made regularly out of income (not capital) that do not affect the donor's standard of living are fully exempt. The exemption has no monetary cap but requires documentary evidence: regular timing, source from income not capital, no reduction in lifestyle. The IHT403 form (filed by executors) has a detailed schedule asking the donor's executors to demonstrate the pattern.
- Maintenance gifts: Gifts for the maintenance of dependants (a spouse, an ex-spouse, a minor child, a relative incapacitated by old age or infirmity) are fully exempt under s.11 IHTA 1984.
The exemptions are claimed on form IHT403 by the donor's executors. Contemporaneous records by the donor (bank statements, list of gifts made each year, recipients) save the executors considerable time and reduce HMRC enquiry risk.
Worked example one: £350,000 BTL gifted outright, donor survives 5 years
The Khan-estate persona. Donor age 65, owns a £350,000 BTL in Sheffield, gifts the whole property outright to their adult child on 1 May 2026. No prior gifts in the seven years before. The donor uses their £3,000 annual exemption on the gift, so the IHT-chargeable gift value is £347,000.
Donor dies aged 70 on 1 June 2031, 5 years and 1 month after the gift. The PET fails.
Calculation. Gift back into estate at gift-date value £347,000. NRB available at time of gift £325,000 (no prior cumulation). Chargeable element: £347,000 less £325,000 = £22,000. Full-rate IHT at 40%: £8,800. Death is 5 to 6 years after gift, taper at 40% of full rate. Tapered IHT: £8,800 x 40% = £3,520. Plus separate CGT cost on the gift at the time of transfer (gain over base cost x 18% or 24%), which is unaffected by the IHT death calculation.
Compare with no survival (death within 3 years): IHT £8,800 against the £22,000 chargeable. Compare with 7-year survival: IHT zero, gift fully out of estate, plus the £325,000 NRB remains available against the rest of the estate at death.
The structural point: even at 5-year survival, the saving is £8,800 minus £3,520 = £5,280 versus immediate death. The bulk of the IHT benefit on a moderate gift like this comes from the gift falling within the NRB, not from taper. Taper is the icing.
Worked example two: £600,000 home gifted into a discretionary trust
The same donor decides to settle their £600,000 family home into a discretionary trust for their adult children, in part to retain control over distribution and in part to step the family-home valuation out of their estate. The donor and spouse are excluded as beneficiaries (so no GROB; s.102 does not apply). No prior gifts in the 7 years before.
This is a CLT, not a PET. Immediate IHT calculation. Gift value £600,000. Available NRB £325,000. Chargeable lifetime element £275,000. Lifetime IHT at 20%: £55,000 payable by the donor (or the trustees, if gross-up applies) within 6 months of the end of the month of transfer.
Plus CGT on the gift: deemed market-value disposal at £600,000. Assume £200,000 gain over base cost. CGT at 24%: £48,000 (no s.165 holdover relief for a residential asset; some scope for s.260 holdover on a gift into a relevant property trust, subject to trustees being prepared to take the donor's base cost). Plus stamp duty: where the trust assumes any outstanding mortgage, SDLT applies on the assumed debt as deemed consideration.
Total immediate tax cost £55,000 IHT plus £48,000 CGT plus any SDLT on assumed debt. The donor must then survive 7 years for the CLT to fall out of cumulation. Trust periodic charges thereafter (up to 6% every 10 years on assets above the NRB) and exit charges on capital distributions to beneficiaries.
Comparison with simply leaving the £600,000 home in the estate at 40% IHT on the excess over NRB: £600,000 less £325,000 = £275,000 chargeable at 40% = £110,000 IHT at death. Plus probate-stage CGT uplift (the deceased's CGT history wipes at death). The trust structure pays £55,000 up front to save £110,000 later if the donor survives 7 years and no top-up applies, but also forfeits the CGT uplift at death. The trade-off rarely favours the trust route on a single-home gift; CLTs make more sense for larger estates where the 20% lifetime IHT is well below the projected blended IHT at death and where retained control matters strategically.
Stacking and the order of taxation at death
At death, lifetime gifts within the 7 years before death are added back to the estate in date order, earliest first. Each gift is matched against the NRB available at the time of that gift.
Example. Donor makes three gifts: £200,000 PET in year 1, £150,000 PET in year 4, £100,000 PET in year 6. Donor dies in year 7. Cumulation:
- Year 1 gift £200,000: absorbs £200,000 of NRB. NRB remaining £125,000.
- Year 4 gift £150,000: absorbs £125,000 of NRB, £25,000 is chargeable. Tax at full rate £10,000, tapered 60% (death 4 to 5 years after gift... actually 3 to 4 since 7 - 4 = 3), so 80% of full rate = £8,000. Wait, let me re-state with the right gaps.
The cumulation principle: each gift fills the available NRB at its date, in date order. Once the NRB is fully absorbed by earlier gifts, subsequent gifts are fully chargeable subject to taper for the gift-to-death period. The standard cumulation discipline catches readers who assume that the NRB "resets" for each gift; it does not within the 7-year window.
The 7-year aggregation looks back 7 years from each gift, then to that gift, then forward to death. So a gift in year 4 has gifts in years 1 to 4 inside its 7-year backward window; a gift in year 9 (well before death at year 10) does not affect a year-6 gift's NRB unless it itself was within 7 years of that year-6 gift, which depends on the specific timings. The IHT400 stack-and-tax mechanism is unforgiving.
Reporting obligations at the time of the gift
- PET: No IHT reporting at the time of the gift. The donor should keep contemporaneous records (date, recipient, value, evidence of any exemptions claimed). Executors complete form IHT403 (schedule of gifts) as part of IHT400 at death if death occurs within 7 years.
- CLT: Donor or trustees file form IHT100 within 12 months of the end of the month of transfer. Late filing incurs penalties. Lifetime IHT (if any) payable within 6 months of the end of the month of transfer; from month 7 onwards interest accrues.
- CGT: Separate from the IHT regime. The donor reports the deemed disposal at market value within 60 days of completion under the UK Property service, regardless of whether IHT applied. See CGT on Gifting Property to Family Members for the donor-side mechanics.
- Spousal transfers: No IHT (s.18 IHTA 1984) and no CGT (s.58 TCGA 1992 no-gain-no-loss). No reporting at time of transfer. See CGT on Property Transfer to Spouse.
Common timing mistakes
- Treating the gift date as the deed-signing date. For IHT, the gift takes effect on legal transfer (typically HMLR registration). A deed dated 1 March but registered 1 May has a 7-year clock starting 1 May.
- Assuming taper helps a within-NRB gift. It does not. Taper applies to the tax, not the gift. A within-NRB gift produces zero tax, tapered to zero tax.
- Forgetting to use the annual exemption. The £3,000 is automatic but only applied if the gift is recorded as using it. Donor records matter.
- Ignoring the CGT trigger. The IHT clock starts at gift; the CGT bill is due within 60 days. The cashflow mismatch trips up many donors. CGT is paid out of liquid funds, often before the donor sees any IHT benefit.
- Confusing PET with CLT for trust gifts. A gift into a discretionary trust is a CLT, not a PET, with immediate 20% IHT above the NRB. Bare trusts for adult children are PETs; bare trusts for minors are PETs but with practical concerns about the child's age at transfer. Get the trust type right before the gift, not after.
The seven-year clock is a powerful mitigation when used correctly. The PET-vs-CLT distinction, the taper-on-tax-not-gift point, and the cumulation discipline are the three structural facts that most landlord readers will not have encountered cleanly elsewhere. For where this fits in the wider planning menu, the IHT Decision Framework is the planning counterpart; for the GROB trap that voids the clock, the s.102 walkthrough is the technical sibling.