A client gave money away and has died: the seven-year rule and taper relief at 32%, 24%, 16% and 8%, worked on a £500,000 gift

A family sits down with the executor and mentions it in passing: "Dad gave my brother half a million for his house a few years back." For a probate file that is a question of dates. Whether the gift costs the estate nothing, or tens of thousands in tax, depends on how long the deceased lived after making it.

What GOV.UK says

On GOV.UK's Inheritance Tax gifts page:

• No tax is due on a gift if the person lives for seven years after making it (a gift into a trust is excluded from that statement).
• If they die within seven years, the rate on the gift depends on the time between gift and death: 40% within three years, then 32% (3 to 4 years), 24% (4 to 5), 16% (5 to 6), 8% (6 to 7), and 0% from seven years.
• Taper relief applies only if the total gifts in the seven years before death exceed the £325,000 tax-free threshold.- Each tax year there is a £3,000 annual exemption (one unused year can be carried forward once) and a £250 small-gift exemption per person.

The £500,000 gift worked

A client gives £500,000 cash to a child on 14 July 2023. Assume no exemption applies and no other gifts were made in the seven years.

1. The gift is above the threshold by £500,000 − £325,000 = £175,000. Only that part is taxable.
2. The seven years run to 14 July 2030.
3. The rate depends on the date of death:

A client who dies in October 2027, 4 years and 3 months after the gift, falls in the 24% band, so £175,000 × 24% = £42,000. The date on the gift cheque or transfer matters, so ask for the bank statement.

What to ask on the file

• Is it one gift or several? The test of £325,000 covers the total of gifts in the seven years. Add them together before looking at the bands.
• What exemptions apply? GOV.UK says gifts within the £3,000 annual exemption or the £250 small-gift allowance are not added to the estate. The example assumes none applies, to keep the arithmetic plain.
• Was it into a trust? The page treats gifts into a trust differently; check before you apply the table.
• Who pays? The page I read set out the rates, not who must pay the tax on a gift. Check HMRC's guidance on that before advising the family.

For the estate's own reliefs, see the guides on the residence nil-rate band taper and business property relief above £2.5 million. The wider file timetable is in the probate key dates calculator.

Overlyft builds AI staff who join a private client team and list every gift the family mentions with its date, work out the years to death and the band it falls in, and hand the fee earner a one-page schedule to check before the estate accounts are drafted.

This is general information, not legal or tax advice. Check GOV.UK and the client's own figures before you advise.