The 14 year rule for inheritance tax

Q: What does this look like with simple numbers?

Illustration only. Ruth put £200,000 into a discretionary trust in March 2014, with no lifetime tax because it was within the nil rate band then. In December 2020 she gave her son £200,000. She died in August 2026. Ignore annual exemptions. The son's gift fails because it was made five years and eight months before death. Looking back seven years from December 2020 catches the March 2014 trust gift, so the cumulative total is £400,000, which is £75,000 over the £325,000 band. Tax at 40% on £75,000 is £30,000. Taper relief for five to six years leaves 40% of that, so the son owes £12,000. The trust gift is more than seven years before death, so there is no additional tax on it, and the estate's own look back includes only the £200,000 gift to the son, leaving £125,000 of band for the estate.

When a gift fails because the donor dies within seven years, the tax on it is worked out by adding it to every chargeable transfer made in the seven years before that gift. So a gift into a discretionary trust made up to 14 years before death can use up nil rate band and push tax onto a later gift, even though the trust gift is itself well outside the seven years. Gifts use the nil rate band in date order, oldest first, and the death estate comes last.

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Where does the 14 year period come from?

It is not a separate rule in the legislation. It follows from two provisions of the Inheritance Tax Act 1984 working together. Section 3A(4) makes a potentially exempt transfer exempt if the donor survives seven years, and chargeable if they do not. Section 7(1) then charges tax on any chargeable transfer by adding its value to the values transferred by previous chargeable transfers made by the same person in the seven years ending with the date of that transfer, and charging the slice at the top.

So a failed gift looks back seven years from its own date, not from the date of death. HMRC’s Inheritance Tax Manual at IHTM14514 puts it simply: where a potentially exempt transfer was made six years and eleven months before death, the period to consider runs back 13 years and 11 months before the death. The basic rule about surviving seven years is covered in the seven year rule for lifetime gifts; this page deals with what happens beyond it.

Which earlier gifts can reach back that far?

Only immediately chargeable transfers. IHTM14514 says that in practice the only transfers outside seven years of death that need to be found are those that were immediately chargeable, such as a transfer into trust. A gift from one individual to another made more than seven years before death is a successful potentially exempt transfer: it is exempt and is never cumulated with anything.

The IHT400 notes list what counts as a chargeable gift for this purpose: a gift not wholly covered by exemptions that was made before 18 March 1986, was made between 18 March 1986 and 21 March 2006 to a company or the trustees of a discretionary trust, or was made on or after 22 March 2006 to anyone other than an individual, a disabled trust or a bereaved minor’s trust on the end of an immediate post death interest. In modern estates that usually means a gift into a discretionary or other relevant property trust. Transfers treated as made by a donor through a close company are also never potentially exempt, so they behave the same way; see inheritance tax on transfers by close companies.

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In what order do gifts use the nil rate band?

Strictly in date order. Because each chargeable transfer is taxed as the top slice of everything chargeable in the seven years before it, the earliest gifts take the band and the later ones are taxed on whatever is left. IHTM14503 confirms that the death estate is then cumulated with chargeable transfers in the seven years before death, both immediately chargeable transfers and failed potentially exempt transfers, so the estate comes last. Where a failed gift is being taxed, IHTM14515 says the nil rate band at the date of death is used. GOV.UK gives the threshold as £325,000, which applies for 2026 to 2027.

Two finer points about order:

The annual exemption is applied to the earliest transfer in the tax year first, whether it was potentially exempt or immediately chargeable (IHTM14143). Gifts on the same day share it in proportion.
Section 266 treats several chargeable transfers on the same day as made in the order giving the lowest value chargeable, and charges them at the effective rate of a single transfer of the same total. IHTM14591 adds that lifetime gifts made on the day of death are always treated as made before the death.

How does HMRC show it working?

IHTM14513 uses this example. Ian died in September 2011, having made these transfers, net of exemptions and reliefs:

Date	Transfer	Type
January 2002	£50,000 to his son Harry	Potentially exempt, more than seven years before death
February 2002	£60,000 to a discretionary trust	Immediately chargeable
April 2006	£75,000 to Harry	Failed potentially exempt transfer
January 2009	£200,000 to Harry	Failed potentially exempt transfer

The January 2002 gift survived seven years and drops out. The February 2002 trust gift is also more than seven years before death, but it is within seven years of the January 2009 gift, so it is counted when that gift is taxed. The cumulative total for the January 2009 gift is £60,000 plus £75,000 plus £200,000, which is £335,000. That is £10,000 over the £325,000 band, so HMRC charges £4,000 at 40% on the gift. Without the trust gift from more than nine years before death, that gift would have been tax free.

The estate itself only looks back seven years from death under IHTM14503, so the trust gift does not reduce the band available against the death estate. In Ian’s case the estate would be cumulated with the April 2006 and January 2009 gifts only.

What happens to the trust gift if the donor dies within seven years of it?

The trust gift is then recalculated as well. Under section 7(2), tax on a lifetime chargeable transfer is charged at half the death rates, and IHTM14571 explains that on death within seven years the tax is recalculated at the full rate and the difference charged as additional tax, with no repayment if the new figure is lower (IHTM14576). For that recalculation IHTM14573 widens the cumulation: it includes immediately chargeable transfers in the seven years before the trust gift and also any potentially exempt transfers made before it that fell within seven years of death. In HMRC’s example, Bernie’s April 2010 trust gift of £250,000 is recalculated with an October 2005 trust gift of £80,000 and a July 2008 gift to his daughter of £60,000, a total of £390,000.

Does taper relief change any of this?

Taper relief reduces the tax on a gift, not its place in the queue. Section 7(4) charges a fraction of the full rate on transfers made more than three years before death: 80% for three to four years, 60% for four to five years, 40% for five to six years and 20% for six to seven years. Form IHT403 notes that taper only helps gifts that exceed the nil rate band available and were made between three and seven years before death. A gift within the band still uses it in full. See taper relief for inheritance tax.

What does this look like with simple numbers?

Illustration only. Ruth put £200,000 into a discretionary trust in March 2014, with no lifetime tax because it was within the nil rate band then. In December 2020 she gave her son £200,000. She died in August 2026. Ignore annual exemptions.

The son’s gift fails because it was made five years and eight months before death.
Looking back seven years from December 2020 catches the March 2014 trust gift, so the cumulative total is £400,000, which is £75,000 over the £325,000 band.
Tax at 40% on £75,000 is £30,000. Taper relief for five to six years leaves 40% of that, so the son owes £12,000.
The trust gift is more than seven years before death, so there is no additional tax on it, and the estate’s own look back includes only the £200,000 gift to the son, leaving £125,000 of band for the estate.

What do executors need to report, and what goes wrong?

Form IHT403 asks at box 18 whether the deceased made any chargeable transfers in the seven years before the earliest gift listed in the seven year section, and box 19 takes the details. Those values are not included in the executors’ own tax calculation; the IHT400 notes say HMRC takes them into account when it looks at the gifts after the grant. The full form is explained in IHT403: reporting gifts in an estate. Common mistakes are:

Searching only seven years back from death and missing an old trust gift.
Counting old gifts between individuals that have already become exempt.
Assuming the old trust gift also reduces the band for the estate.
Applying taper relief as if it freed up nil rate band for later gifts.
Leaving boxes 18 and 19 blank because the trust was set up long ago and records were not kept.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.