Inheritance Tax on Gifts When the Giver Lives Abroad: the 7-Year Rule Meets the 10-Year Tail

Since 6 April 2025, UK inheritance tax has been charged on a residence basis. You are a long-term UK resident (LTR) if you were UK tax resident in at least 10 of the 20 tax years before the chargeable event, with each year settled under the Statutory Residence Test. While you are an LTR, your worldwide assets are within UK IHT, so a gift of a foreign asset is a potentially exempt transfer (PET), exempt only if you survive it by 7 years (GOV.UK).

If you are not a long-term UK resident, only your UK situated assets are within UK IHT (GOV.UK). Your non-UK assets are excluded property, and a gift of them is simply not an IHT event. What matters is your status at the date of the gift: the same asset given a year earlier or later can produce a completely different result.

Non-residence does not end long-term resident status straight away. If you were an LTR when you left, the status persists for a tail of between 3 and 10 tax years: 3 years if you were UK resident in 13 or fewer of the last 20 tax years, then one extra year for each additional resident year, up to 10 for someone resident in all 20. Our IHT tail calculator works out your own tail, and the full ladder is in our residence-based IHT guide.

A gift of foreign assets made during the tail is a PET with a live 7-year clock; the same gift after the tail has expired is invisible to UK IHT. Die during the tail and your entire worldwide estate is within UK IHT, not just the failed gift. Anyone leaving the UK with foreign wealth should map the tail before deciding when to give.

Once you cease to be a long-term UK resident, your non-UK assets become excluded property. A gift of excluded property is disregarded for inheritance tax: it is not a PET, it starts no 7-year clock, it uses none of your £325,000 nil-rate band and does not need to be survived.

• Foreign real estate, foreign bank and investment accounts and non-UK company shares all count as non-UK situated.
• Holdings in UK authorised unit trusts and OEICs are also excluded for someone who is not a long-term UK resident, despite being UK based (GOV.UK).
• Gifts into trust follow their own rules: see our excluded property trusts guide; the settlor's status is retested at later events rather than locked in.

One caution for couples: the unlimited spouse exemption assumes both spouses are long-term UK residents. Where the recipient spouse is not, the exemption is capped, though an election can restore it at the cost of bringing that spouse's worldwide estate into scope.

There is no escape by emigration for UK situated assets: when someone based abroad dies, inheritance tax is paid on their UK assets, such as property or bank accounts in the UK (GOV.UK). A UK buy-to-let, UK company shares and UK land stay within UK IHT however long you have lived abroad, even if you were never a long-term UK resident.

The 7-year rule therefore always matters for UK assets: gift now, survive 7 years and the asset falls out of your estate. Two traps: continuing to use a gifted UK property can be a gift with reservation of benefit, keeping it in your estate, and the gift is a market-value disposal for capital gains tax, which non-residents pay on UK property even though no money changes hands.

For any gift in scope, the mechanics are the same wherever you live. Nothing is due when you give, and if you survive 7 years the gift is fully exempt. Die within 7 years and HMRC sets your non-exempt gifts, oldest first, against the £325,000 nil-rate band (GOV.UK): gifts within the band are taxed at 0%, only the excess at up to 40%, payable primarily by the recipient. Our gift timeline tool maps your gifts against the clock.

Taper relief reduces the tax, never the value of the gift, where death falls 3 to 7 years after it (HMRC manual IHTM14611). Because gifts inside the nil-rate band bear no tax, taper only helps once cumulative gifts in the 7 years before death exceed £325,000.

• Death 3 to 4 years after the gift: tax charged at 32%.
• Death 4 to 5 years after the gift: tax charged at 24%.
• Death 5 to 6 years after the gift: tax charged at 16%.
• Death 6 to 7 years after the gift: tax charged at 8%.
• Death within 3 years: the full 40%, no taper.

The everyday exemptions also apply identically from abroad: the £3,000 annual exemption (plus one year's unused carry-forward), £250 small gifts per person, wedding gifts within set limits and regular gifts out of surplus income. None of these enter the 7-year clock.

This example is illustrative. An expat in Dubai was UK resident for all 20 tax years before leaving in April 2022, so her tail is the maximum 10 years: she remains a long-term UK resident until she has been non-resident for 10 complete tax years, 2022/23 to 2031/32. In June 2026, in her fifth tax year of non-residence, she gifts a Dubai investment portfolio worth £500,000 to her daughter, a PET because she is still within the tail.

• Gift: £500,000. Deduct the £3,000 annual exemption for 2026/27 plus £3,000 carried forward unused from 2025/26, £6,000 in total.
• PET value: £500,000 less £6,000 = £494,000. The 7-year clock runs to June 2033.
• She dies in February 2029, within 3 years of the gift, so no taper relief applies.
• Nil-rate band first: £325,000 of the £494,000 is taxed at 0% (assuming no earlier gifts).
• Taxable excess: £494,000 less £325,000 = £169,000. Tax at 40% = £67,600, payable primarily by her daughter.
• Had she instead died in December 2030, between 4 and 5 years after the gift, taper cuts the rate to 24%: £169,000 x 24% = £40,560.

And because she died during the tail, her whole worldwide estate is within UK IHT, the gift having already consumed her nil-rate band.

Same expat, same asset, again purely illustrative. Suppose she instead waits until the 2032/33 tax year, her 11th tax year of non-residence and the first after her 10-year tail (2022/23 to 2031/32) has expired, so she is no longer a long-term UK resident. She now gifts the same Dubai portfolio, by then worth £560,000, to her daughter.

• At the date of the gift she is not an LTR and the asset is non-UK situated, so it is excluded property.
• The gift is outside UK IHT entirely: no PET, no 7-year clock, no reporting against the nil-rate band.
• Even if she dies within 7 years of this gift, UK IHT takes no account of it.
• Her full £325,000 nil-rate band remains available for any UK assets still in her estate.

An identical gift produces up to £67,600 of tax inside the tail and £0 outside it. But growth stays in her estate while she waits, death during the tail brings the worldwide estate back in, and returning to the UK can restart the analysis.

Illustrative again. A retiree in Australia left the UK 15 years ago and is no longer (and need never have been) a long-term UK resident. In June 2026 she gifts her UK buy-to-let flat, worth £400,000 with no mortgage, to her son. The property is UK situated, so the gift is a PET and the 7-year clock runs regardless of her residence.

• Gift: £400,000. Deduct £3,000 annual exemption for 2026/27 plus £3,000 carried forward: PET of £394,000.
• She dies in December 2032, 6 and a half years after the gift, so the PET fails but falls in the 6 to 7 year taper band.
• Nil-rate band first: £325,000 of the £394,000 is taxed at 0% (assuming no other gifts in the window).
• Taxable excess: £394,000 less £325,000 = £69,000. At the full 40% the tax would be £27,600.
• Taper relief for the 6 to 7 year band cuts the rate to 8%: £69,000 x 8% = £5,520, payable primarily by her son.
• Had she survived to June 2033, 7 full years, the tax would have been nil and the flat entirely out of her estate.

Two checks: the gift is a market-value disposal for capital gains tax, and non-residents pay NRCGT on UK residential property, even with no cash changing hands; and if she kept using the flat rent free on UK visits, the gift with reservation rules could keep it in her estate anyway.