Form IHT403: Gifts and the 7-Year Rule (2026 Guide)

Form IHT403 is the schedule executors file alongside Form IHT400 to declare every lifetime gift the deceased made in the seven years before death — and, in some cases, further back. It is the schedule HMRC uses to decide whether any of those gifts fall back into the estate for Inheritance Tax. If the deceased was generous, forgetful with paperwork, or simply long-lived, IHT403 is where the work lives.

When Do You Need IHT403?

Executor or PR of estate that must file full IHT400, and deceased made any gift in the seven years before death beyond trivial amounts. Not optional — IHT calculation cannot be completed without it.

Typical scenarios: cash to children/grandchildren for house deposit, wedding, tuition; Christmas/birthday gifts over £250; transfers of shares, artwork, jewellery, second property; setting up or adding to trust (CLT); writing off a loan; school fees paid for grandchildren; continuing to live in a “given” house (classic GWR).

NOT needed for excepted estates (no IHT400). Full-account territory: schedule comes with it.

The Core Rule: PETs and the 7-Year Clock

A Potentially Exempt Transfer is a lifetime gift from individual to individual (or certain trusts for disabled beneficiaries). At moment of giving: potentially exempt — no immediate IHT due. Clock starts.

• Donor survives 7 full years: gift falls out of estate entirely
• Donor dies within 7 years: gift pulled back at value on date of gift, counts first against available NRB

“First bite” of NRB is why lifetime gifts matter at death. £325,000 PET 6 years before death consumes entire NRB before any other asset tested — exposing rest of estate to 40% IHT.

Taper Relief — s.7 IHTA 1984

Where PET fails (donor dies within 7 years) and gift exceeds NRB, taper reduces tax on excess. Taper reduces tax, not value.

• 0–3 years: 100% tax (0% relief)
• 3–4 years: 80% tax (20% relief)
• 4–5 years: 60% tax (40% relief)
• 5–6 years: 40% tax (60% relief)
• 6–7 years: 20% tax (80% relief)
• 7+ years: 0% tax (100% relief)

Common trap: gift 4.5 years before death does not reduce in value by 40%. Gift still consumes NRB at full value. Taper only softens tax on slice above NRB.

Exemptions That Reduce or Remove a Gift

Annual Exemption — £3,000/tax year

Unused carries forward one tax year only. No gifts in 2024/25 → £6,000 tax-free in 2025/26. Carry-forward used after current year exhausted.

Small Gifts — £250/person/year

Gifts of £250 or less to any one person tax-free. Unlimited recipients. If exceeds £250: whole gift taxable. Cannot combine with annual exemption for same recipient.

Wedding/Civil Partnership Gifts

• Parent to child: £5,000
• Grandparent: £2,500
• Anyone else: £1,000
• Bride/groom: £2,500

Must be in consideration of marriage, before/on ceremony. Wedding called off: exemption fails.

Normal Expenditure Out of Income — s.21 IHTA 1984

Most powerful exemption, most often challenged by HMRC. Three limbs:

1. Formed part of donor’s normal expenditure (habitual, regular, settled pattern)
2. Made out of income (not capital) — post-tax salary, pensions, interest, dividends, rental
3. Donor left with enough income to maintain usual standard of living

IHT403 page 6: income-and-expenditure table. Reconstruct tax year by tax year. Grandparents paying school fees, monthly standing orders, life policy premiums — common successful claims.

Spouses, Civil Partners, Charities

Gifts between UK-domiciled spouses/civil partners wholly exempt. UK charities exempt. List on IHT403 with exemption ticked.

Gifts With Reservation of Benefit (GWR)

Gift where donor gave something away on paper but continued to enjoy it. Classic: parents transfer family home to children but carry on living there rent-free.

For IHT: house never left the estate. Comes back at DOD value, not gift date. s.102 Finance Act 1986.

GWR unless donor entirely excluded from possession/enjoyment AND does not retain benefit. Paying full market rent can cure reservation (“full consideration” exception) — must be documented and genuine.

Chargeable Lifetime Transfers (CLTs)

Gift made by individual into most trusts (not bare trusts or disabled-person trusts). Not PET — taxable at gift date, 20% on amount above available NRB.

Donor dies within 7 years of CLT: reassessed at 40% with credit for 20% paid. Taper applies to death-rate slice above NRB.

14-year rule: CLTs outside 7-year window can “pre-consume” NRB against later PETs. List CLTs separately from PETs on IHT403.

Common Mistakes

• Assuming small gifts don’t count — £300 birthday cheque is not within £250 exemption; whole £300 is a PET (less annual exemption)
• Missing carry-forward rule — current year first, then last year
• Confusing taper with value discount — taper reduces tax not value against NRB
• Overlooking standing orders to adult children
• Claiming normal expenditure from capital — fails
• Forgetting given-but-lived-in home — GWR on page 4
• Loan written off — gift on date of release, not date loan made
• Ignoring 14-year rule — CLTs outside 7 years can still affect PETs within
• Valuing shares at probate date, not gift date
• Signing before figures tie

The Rules That Apply

• s.3A IHTA 1984 — PETs
• s.7 IHTA 1984 — rates and taper relief
• s.19 IHTA 1984 — annual exemption £3,000
• s.20 IHTA 1984 — small gifts £250
• s.21 IHTA 1984 — normal expenditure out of income
• s.22 IHTA 1984 — wedding gifts
• ss.18 and 23–27 — spouse, charity, political, heritage
• s.102 Finance Act 1986 — GWR
• Schedule 20 Finance Act 1986 — tracing and valuation for GWRs

How Chris Can Help

Where executors lose days and estates lose money. Arithmetic unforgiving, exemptions overlap, normal-expenditure table rewards patient more than talented. Chris works through bank statements, gift letters, trust deeds; drafts IHT403 presenting each gift with correct exemption, value, narrative.

7-day money-back guarantee. We refund. We are miracle-makers, not miracle-workers. If records incomplete, we tell you what is missing rather than guess.

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FAQ

Bank records don’t go back 7 years?

Most UK banks retain 6–7 years. Release archived records on grant/death certificate. Truly gone: make reasonable enquiries, document efforts, record best estimate.

£5,000 wedding gift use annual exemption?

No. £5,000 parental wedding gift (s.22) is separate from £3,000 annual exemption (s.19). Both apply independently.

7-year clock exact or tax year?

Exactly. Date of gift to date of death, day for day.

What counts as gift?

Any transfer of value without full consideration: cash, shares, property, chattels, interest-free loans, debt written off. Selling below market = part-gift equal to shortfall.

PET fails — who pays tax?

Recipient primarily liable. Not paid within 12 months of death: liability transfers to PRs. Consider insuring risk or holding back distribution.

School fees for grandchildren?

Yes if three limbs of s.21 met: regular pattern, taxed income, usual standard of living maintained. Keep bank statements, letter of intent.

Bare trust gift PET or CLT?

Bare trust = transparent for IHT. Beneficiary treated as owner. Gift = PET. Other trusts (discretionary, life interest post-22 March 2006): CLTs.

Taper within NRB?

No. Taper reduces tax actually due. Failed PET sits entirely within NRB: no tax to taper. Gift still consumes band against other estate assets.