Inheritance Tax 14 Year Rule: What It Means and How to Plan

Inheritance Tax (IHT) can significantly affect what your loved ones receive after your death. While many people have heard of the 7-year rule for gifts, fewer know about the inheritance tax 14 year rule. Understanding how this rule works is essential if you’ve made gifts into trusts or are considering estate planning strategies that involve gifts during your lifetime.

In this comprehensive guide, we’ll break down exactly how the 14-year rule works, why it matters, and how to structure your estate to minimise the impact of inheritance tax. For help tailored to your personal situation, book a free consultation with our experts.

What Is the Inheritance Tax 14 Year Rule?

The inheritance tax 14 year rule is a little-known but important consideration when it comes to lifetime gifts. It doesn’t apply to all gifts—only in situations where the person making the gift (the donor) has made both chargeable lifetime transfers (CLTs) and potentially exempt transfers (PETs).

In short, this rule means that gifts made up to 14 years before death can impact the tax due on later gifts if those later gifts fail (i.e., the donor dies within 7 years of making them).

Understanding PETs and CLTs

To understand the 14-year rule, you first need to know the difference between PETs and CLTs:

• Potentially Exempt Transfers (PETs): These are usually gifts made to individuals. If the donor survives for 7 years after making the gift, it becomes exempt from IHT.
• Chargeable Lifetime Transfers (CLTs): These are gifts into most trusts. They are immediately subject to inheritance tax if they exceed the nil-rate band, and they may also become taxable again if the donor dies within 7 years.

Normally, IHT only looks back 7 years for gift records. But if a PET fails, and there were CLTs in the previous 7 years, those CLTs reduce the nil-rate band available to offset the PET—triggering the 14-year rule.

How the Inheritance Tax 14 Year Rule Works in Practice

Here’s an example:

• In 2010, Sarah makes a gift of £300,000 into a discretionary trust (a CLT).
• In 2016, she gifts £325,000 to her son (a PET).
• In 2020, Sarah dies—just 4 years after making the PET.

The PET from 2016 fails because she didn’t survive 7 years. Now, HMRC checks for any CLTs made in the 7 years before that PET (i.e. from 2009–2016). The CLT from 2010 reduces Sarah’s nil-rate band, increasing the IHT due on the failed PET.

This is the inheritance tax 14 year rule in action. Even though the CLT was made 10 years before Sarah’s death, it affects the tax due on a more recent gift.

How Does the Nil-Rate Band Work in This Context?

The nil-rate band is the threshold under which no inheritance tax is payable. As of 2024, the threshold is £325,000. This figure can be reduced by previous chargeable gifts.

So if a CLT used up £200,000 of the nil-rate band, and a failed PET follows, there may only be £125,000 left to offset it—resulting in IHT being charged on the remaining value.

Why the Inheritance Tax 14 Year Rule Matters

The 14-year rule matters for anyone making multiple gifts—especially if they’ve used trusts. Many families believe that once a gift is made, it’s out of their estate after 7 years. But if a failed PET is involved and previous CLTs exist, this assumption can lead to costly mistakes.

That’s why it’s critical to keep accurate records of all lifetime gifts and understand how they might interact over time.

How to Avoid Getting Caught by the 14-Year Rule

There are several steps you can take to protect your estate:

1. Keep Detailed Gift Records

Document all PETs and CLTs, including dates and amounts. HMRC requires this information when calculating IHT on your estate.

2. Be Cautious with Trust Gifts

If you use trusts for asset protection or tax planning, understand the CLT implications. Talk to a qualified estate planner before proceeding.

3. Consider Gift Insurance or a Trust Strategy

Some families use life insurance written in trust to cover potential IHT bills on failed gifts. Alternatively, placing assets in the right kind of trust—like a Protective Property Trust—can help reduce exposure.

4. Seek Regular Advice

Estate plans aren’t static. They should be reviewed every few years, especially if you’ve made large gifts or experienced major life changes.

Gifts Made Within 3–7 Years of Death

It’s also important to note that gifts made between 3 and 7 years before death receive taper relief. This means the IHT rate on those gifts reduces over time:

• 0–3 years: 40%
• 3–4 years: 32%
• 4–5 years: 24%
• 5–6 years: 16%
• 6–7 years: 8%
• 7+ years: 0% (if no 14-year rule applies)

This relief only applies to the tax due, not the gift’s value itself.

Planning Ahead: Why Timing Is Everything

To avoid unpleasant surprises, timing your gifts wisely is key. For example:

• Make PETs well before making CLTs
• Consider spacing gifts more than 7 years apart
• Speak to an expert to understand the order of gifting and tax consequences

Real-Life Scenario: 14-Year Rule in Action

Let’s take a more detailed case:

• In 2011, Brian transfers £400,000 into a trust for his grandchildren (a CLT).
• In 2015, he gifts £250,000 to his daughter (a PET).
• Brian dies in 2022, seven years after the PET but 11 years after the CLT.

Most people assume no tax is due. But the PET failed (since Brian died within 7 years), and the CLT from 2011 still impacts the nil-rate band—even though it was made more than 7 years before his death. HMRC includes it due to the 14-year rule.

Best Practices for Inheritance Tax Planning

Use these best practices to stay ahead:

• Plan early: Make gifts before your health declines.
• Document everything: Maintain clear, dated records of all transfers.
• Use expert guidance: Our team specialises in navigating complex gift scenarios.
• Review your plan annually: Especially if your circumstances change or new laws are introduced.

Visit our pricing page to see what’s included in our IHT and estate planning services.

FAQs About the Inheritance Tax 14 Year Rule

Does the 14-year rule apply to all gifts?

No. It only applies when a PET fails and there were CLTs made in the 7 years before that PET.

Can I avoid the 14-year rule by not using trusts?

Possibly. If you only make PETs and no CLTs, the rule won’t apply. However, trusts still offer benefits that may outweigh this consideration—so speak to an expert first.

What happens if I don’t keep records?

Your executors may struggle to complete an accurate IHT return. This could lead to overpayment or fines from HMRC.

Does the residence nil-rate band (RNRB) affect the 14-year rule?

No. RNRB is applied separately, though it can reduce overall IHT liability on your main residence.

Conclusion: Protect Your Legacy from Hidden Tax Traps

The inheritance tax 14 year rule can catch families off guard, especially when earlier gifts made into trusts affect the tax due on later ones. By planning ahead and understanding how PETs and CLTs interact, you can avoid costly surprises and ensure your loved ones inherit as much as possible.

At MP Estate Planning UK®, we specialise in inheritance tax planning, lifetime gifting, and trust creation. We’ll help you build a legally sound strategy to reduce tax, safeguard your home, and pass your assets on exactly as you intend.

• Book a free consultation to get started today
• View our transparent pricing for inheritance tax services