There are specific rules regarding the liability to Inheritance Tax (IHT) on gifts made during a person's lifetime. In most cases, gifts made during a person’s life are not taxed at the time they are given.

These lifetime gifts are referred to as "potentially exempt transfers" (PETs). The gift becomes exempt from IHT if the giver survives for more than seven years after making the transfer, commonly referred to as the seven year rule. There were expectations that this rule might have been changed as part of the Budget measures, but no changes were made.

If the giver dies within three years of making the gift, the IHT treatment is as if the gift was made upon death. If death occurs between three and seven years after the gift, a tapered relief applies.

The IHT rates on the amount exceeding the IHT nil-rate band are as follows:

• 0 to 3 years before death: 40%
• 3 to 4 years before death: 32%
• 4 to 5 years before death: 24%
• 5 to 6 years before death: 16%
• 6 to 7 years before death: 8%

If you give away an asset but continue to benefit from it, this is considered a “gift with reservation,” and the value of the asset will still count towards your estate. Examples of gifts with reservation include:

• Giving your home to a relative but continuing to live in the gifted property.
• Giving away a caravan but still using it for holidays without charge.
• Donating a valuable painting but still displaying it in your home.