What is the 7-year rule in the UK?
In most cases, however, if the tax is due on gifts you made during the last seven years before your death, the people who received the gifts are responsible for paying the tax. If they are unable or unwilling to pay, the sum owed is deducted from your estate.
Most gifts, with the exception of those given into most types of trusts, are not taxable by Inheritance tax when made, regardless of their value. Furthermore, if you live for 7 years after making those gifts, they will be exempt from Inheritance tax. Potentially exempt transfers are the name given to these types of gifts. The term "potentially" exempt comes from the fact that if you do not live for 7 years from the date of the gift, the gift will be subject to Inheritance tax.
When a transfer becomes taxable, the transfer's value is applied so that it affects your NRB and, consequently, the amount you can pass on to your beneficiaries tax-free when you die. If you die during the next seven years and your gift exceeds the NRB of £325,000, IHT will be charged the amount exceeding the NRB.
We understand that the rules and regulations of IHT might seem daunting but, our team at Lawrence Grant is fully equipped to help you out with any and all queries you may have.