Seven Year Rule
Chargeable lifetime transfers that exceed the available NRB when they are made result in a lifetime Inheritance Tax liability paid by settlor.
Failure to survive for seven years results in the value of the chargeable lifetime transfers being included in the estate. If the chargeable lifetime transfers are subject to further Inheritance Tax on death, a credit is given for any lifetime Inheritance Tax paid during life.
Following a gift to an individual or a Bare Trust (a basic Trust in which the beneficiary has the absolute right to the capital and assets within the Trust, as well as the income generated from these assets), there are two potential outcomes: survival for seven years or more, and death before then.
The former results in the potentially exempt transfer becoming fully exempt and no longer figuring in the Inheritance Tax assessment. In other cases, the amount transferred less any Inheritance Tax exemptions is ‘notionally’ returned to the estate.