Do I need to report gifts under £3,000 on IHT403?

Gifts fully covered by the £3,000 annual exemption, the £250 small-gifts exemption, or the wedding-gift exemptions do not need to be totalled into the seven-year history. Keep a note of them anyway in case HMRC asks for the working.

Do birthday and Christmas presents need reporting?

Small gifts of up to £250 per person per year are exempt and are not normally reported. Larger presents should be recorded with a date and value.

What records does HMRC expect for gifts?

Bank statements for the seven years before death, plus the family's recollections of major events such as house deposits and weddings. Executors are expected to make reasonable enquiries, not to reconstruct every coffee. If a figure is an estimate, say so on the form and explain the basis.

Who pays the tax on a gift that becomes chargeable?

The person who received the gift is primarily responsible for Inheritance Tax on it, on a sliding scale after three years. In practice the estate and the recipient often agree how it is settled, but executors should flag it to recipients early.

What if the deceased gave away their house but kept living in it?

That is likely a gift with reservation of benefit, which is treated as if the gift never happened for Inheritance Tax purposes — the house stays in the estate at its date-of-death value. These cases need professional advice.

Forms · 9 min read

IHT403: how to report lifetime gifts, step by step

IHT403 is the schedule executors dread, because it asks about 7 years of someone else's spending. Approached methodically it is manageable — and getting it right matters, because gifts within the 7 years before death can use up the nil-rate band or create a tax bill of their own.

Written and reviewed by Ramani Gill, Founder & CEO — Solicitor, TEP, BA, LLM. Last reviewed 2026-08-19.

What has to be reported on IHT403

Outright gifts of cash or assets in the 7 years before death
Gifts into trust, whenever made if the deceased still benefited
Gifts where the deceased kept a benefit (a 'gift with reservation'), whenever they were made — for example a house given away but still lived in rent-free
Regular payments the deceased made out of income, such as a standing order to a child
Sales at less than market value, which are treated as part gift
Premiums on life policies written for someone else's benefit

Gifts between spouses and civil partners

Gifts between UK-domiciled spouses or civil partners are exempt and do not go on IHT403. Neither do gifts to UK-registered charities.

The exemptions that come off first

Before any gift uses up the nil-rate band, several exemptions can remove it from the calculation entirely. Apply them in this order.

Exemption	Amount	Key condition
Annual exemption	£3,000 per tax year	Can be carried forward one year if unused, so up to £6,000 in the first year claimed
Small gifts	£250 per recipient per year	Cannot be combined with another exemption for the same person
Wedding or civil partnership gifts	£5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else	Must be made before, and conditional on, the ceremony
Normal expenditure out of income	No fixed limit	Regular, from surplus income, standard of living unaffected
Gifts for family maintenance	Varies	Supporting a dependent relative or a child in education

A gift fully covered by exemptions does not need to be totalled into the 7-year history, though keeping a note of it is still good practice in case HMRC asks.

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The 7-year rule and taper relief, with a worked example

Gifts made more than 7 years before death are free of Inheritance Tax. Gifts within 7 years are added back, oldest first, and eat into the £325,000 nil-rate band before the estate itself is taxed. Only if the total of gifts in the 7 years exceeds the nil-rate band is tax charged on the gifts themselves — and that tax is tapered by how long ago the gift was made.

Years between gift and death	Tax rate on the excess over the nil-rate band	Effective reduction
0 to 3	40%	No relief
3 to 4	32%	20%
4 to 5	24%	40%
5 to 6	16%	60%
6 to 7	8%	80%
7 or more	0%	Fully exempt

Worked example. Margaret gave her son £400,000 in May 2022 and died in February 2026, just under four years later, leaving an estate of £200,000. Her £3,000 annual exemptions for 2022/23 and 2021/22 (unused) reduce the gift to £394,000. That uses up the whole £325,000 nil-rate band and leaves £69,000 chargeable. Because she survived between three and four years, the rate on the gift is 32% — £22,080, payable by her son. Her estate then has no nil-rate band left, so the £200,000 is taxed at 40% (subject to any residence nil-rate band and transfers from a late spouse).

Taper relief only reduces tax on the gift itself

The most common misunderstanding: taper relief does not reduce the value of the gift that eats into the nil-rate band. A £400,000 gift six years before death still uses £400,000 of the band — taper only softens the tax charged on the gift once it exceeds the band.

How to reconstruct the gift history

Request 7 years of statements from every bank, savings and investment account — banks expect this request from executors
Highlight any single payment over a few hundred pounds that is not a normal household bill
Identify recurring standing orders and direct debits to family members
Check for large transfers around house purchases, weddings and school or university fees
Ask the family directly — executors are expected to make reasonable enquiries
Record the date, recipient, description and value of each gift, and which exemption you believe applies

The normal expenditure out of income exemption

Regular gifts made from income, which left the deceased's standard of living unaffected, are fully exempt however large. The exemption is claimed in the income and expenditure table on IHT403, and it lives or dies on the evidence.

Test	Evidence to show
Regular	A pattern of payments, usually monthly or annual, or a clear standing commitment
Out of income	Income exceeded expenditure plus gifts each year — use the IHT403 income table
Standard of living maintained	Capital was not being run down to fund the gifts

Common mistakes on IHT403

Forgetting the annual exemption carry-forward, which wastes up to £3,000 of relief
Reporting gross gifts without deducting exemptions first
Missing gifts with reservation, where the deceased gave an asset away but kept using it
Guessing values instead of marking them as estimates with an explanation
Omitting regular payments from income that could have been claimed as exempt
Not telling the family that tax on a failed gift falls on the recipient, not the estate

GOV.UK — Form IHT403

GOV.UK — How gifts are taxed

Common questions

Do I need to report gifts under £3,000 on IHT403?: Gifts fully covered by the £3,000 annual exemption, the £250 small-gifts exemption, or the wedding-gift exemptions do not need to be totalled into the seven-year history. Keep a note of them anyway in case HMRC asks for the working.
Do birthday and Christmas presents need reporting?: Small gifts of up to £250 per person per year are exempt and are not normally reported. Larger presents should be recorded with a date and value.
What records does HMRC expect for gifts?: Bank statements for the seven years before death, plus the family's recollections of major events such as house deposits and weddings. Executors are expected to make reasonable enquiries, not to reconstruct every coffee. If a figure is an estimate, say so on the form and explain the basis.
Who pays the tax on a gift that becomes chargeable?: The person who received the gift is primarily responsible for Inheritance Tax on it, on a sliding scale after three years. In practice the estate and the recipient often agree how it is settled, but executors should flag it to recipients early.
What if the deceased gave away their house but kept living in it?: That is likely a gift with reservation of benefit, which is treated as if the gift never happened for Inheritance Tax purposes — the house stays in the estate at its date-of-death value. These cases need professional advice.

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