Gifts made within seven years of death

This is because of the “7 year rule” for inheritance tax. This rule states that the value of gifts or transfers made by the deceased during their lifetime may be added to the value of their estate after death.

In most cases this is straightforward.  

Examples of gifts and transfers

Any gift or transfer made by the deceased during his or her lifetime (not in their will) must be declared if it does not fall within certain exemptions, listed below.

This could include, for example:

1. a £10,000 gift to the deceased’s granddaughter to help towards buying a house;
2. a transfer of the deceased’s house to his or her children; and
3. a gift of a painting worth £7,500 to a local social club (as long as it isn’t a charity).

Exemptions

Thankfully, however, there are a number of exemptions to the “7 year rule”. When declaring gifts and transfers by the deceased, you can ignore any which were:

1. made in the deceased’s will or under intestacy;
2. made more than 7 years before the deceased died;
3. to the deceased’s spouse or civil partner or to a charity;
4. made in a year when the deceased did not make gifts totalling more than £3,000 (this is the deceased’s “annual exemption”);
5. £250 or less per recipient per year (these are completely ignored and do not count toward the deceased’s “annual exemption”);
6. made out of the deceased’s income and was treated by the deceased as normal expenditure, generally meaning that the deceased made a regular pattern of payments (there is no limit on value and these payments could have been to anyone);
7. made to a child of the deceased shortly before their marriage, of up to £5,000;
8. made to a grandchild or great-grandchild of the deceased shortly before their marriage, of up to £2,500; and
9. made to anyone else shortly before their marriage, of up to £1,000.

If any and all gifts and transfers are covered by these exemptions, you can skip past this question, unless they are not “specified transfers”.

What is a specified transfer?

Things get tricky in the unlikely event that the gifts or transfers were not “specified transfers”. An asset qualifies as a specified transfer if it was:

1. cash, e.g. a cheque or bank transfer;
2. listed (public) stocks or shares; 
3. a house or other property or land; or
4. any household and personal belongings.

If the deceased made a gift or transfer of anything other than the above, it will not be possible to complete the IHT205, and we suggest seeking professional advice.

Giving up the right to benefit from assets held in trust

Also treated as a gift or transfer is giving up the right to benefit from any assets held in trust during the deceased's lifetime. If you think this applies to the deceased's estate, see our guide "Giving up the right to benefit from assets held in trust".

A bit of legal jargon

A lifetime gift or transfer by the deceased which is covered by one of the exemptions listed above is called a “potentially exempt transfer”.

A lifetime gift or transfer by the deceased which is not covered by one of the exemptions listed above is called a “lifetime chargeable transfer”.