Last modified: 23/06/2011

Inheritance tax: the seven year rule

When dealing with probate, it’s important to be aware of the “seven year rule”.

Video: Inheritance tax - planning and avoidance

The “seven year rule” exists purely for inheritance tax purposes. Broadly, it states that any gift made by a deceased person in the seven years before their death (not in their will), might be added to their estate for inheritance tax purposes after death.

So, if the deceased made a gift of £20,000 to one of his or her children last year, the value of the deceased’s estate could now be increased by £20,000. Of course, the child will not have to pay back the money; it just means that a little more inheritance tax might now have to be paid.

The vast majority (97%) of estates are exempt from inheritance tax. For exempt estates, this rule has no effect, unless it bumps up the value of the estate so much that it becomes taxable.

Nevertheless, any non-exempt gifts must still be declared, even if the estate is not taxable. 

The reasoning behind the rule

The purpose of the seven year rule is effectively to prevent an old or dying person from giving away large chunks of their estate shortly before death, thereby circumventing inheritance tax.

How does it work?

The seven year rule, along with all the exemptions, is explained in detail in our guide “gifts made within seven years of death”. 

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