A retired reader asked me how to gift a flat to his kids. I'm 28 — I had to learn the 7-year rule from scratch.

The email

A retired reader emailed me a few weeks ago. If that pattern sounds familiar, it should — a retired reader's email is also why the retirement income tracker exists. Retired readers are, collectively, the best product team I've never hired.

The scenario, paraphrased: he and his wife own a second flat which they let out, and the rent forms part of their retirement income. They'd like to sell it and gift the proceeds to family — to help now, rather than leave everything in a will. Losing the rent means they might need to draw more from their pensions to cover spending. And sitting behind all of it, the question every retired couple carries around: what if one of us needs care later?

He added something that's been rattling around my head since. In his experience, financial advisers rarely give retired people answers they can actually understand. Not wrong answers — just answers wrapped in so much hedging and jargon that you leave the meeting knowing less than when you walked in.

I read the email twice and realised I had a problem. I'm 28. I don't own a buy-to-let. Nobody has ever gifted me a flat. My entire estate-planning knowledge at that point was "inheritance tax exists and people complain about it". If I was going to build anything useful for him, I had to go and learn the rules properly, from zero.

So I did. It took longer than I expected, and several things along the way genuinely surprised me.

I had to look up what a residence nil-rate band even was

Honestly. I knew the phrase "nil-rate band" the way you know the name of a country you couldn't place on a map.

Here's the version I wish someone had given me on day one. Everyone gets a £325,000 nil-rate band — the first £325,000 of your estate is taxed at 0%. If you pass your home (or the value from a home you used to own) to children or grandchildren, you get an extra £175,000 residence nil-rate band on top. Anything above your combined bands is taxed at 40%.

Married couples and civil partners can pass whatever they don't use to each other. So a couple leaving a family home to their kids can shelter up to £1 million combined before any inheritance tax is due. That single number answers the first question most people have, and it took me an embarrassingly long time to assemble it from the official guidance — it's scattered across about five different pages, none of which talk to each other.

Two wrinkles I didn't see coming. The residence band starts being withdrawn once an estate passes £2 million — you lose £1 of it for every £2 over, so it's gone entirely by £2.35m for a single person. And if you leave at least 10% of your net estate to charity, the tax rate on the rest drops from 40% to 36%. I'd never heard of either rule. Both have been sitting there for over a decade.

The 7-year rule, explained the way I needed it explained

This is the bit his question actually hinged on, and the bit I'd most misunderstood from pub-conversation osmosis.

When you give money away during your lifetime — to a child, a grandchild, anyone — there's no immediate tax and no limit on the amount. The gift is what HMRC calls a potentially exempt transfer, which is a wonderfully honest name once you decode it: exempt, potentially. Survive seven years from the date of the gift and it leaves your estate completely. Die within seven years and it comes back into the inheritance tax sums.

The part almost everyone gets wrong — I certainly did — is taper relief. People talk about gifts "tapering away" over the seven years, as if the gift gradually shrinks. It doesn't. Taper relief reduces the tax on a gift, not the value of it, and it only kicks in at all when the gifts themselves have blown past the £325,000 nil-rate band. For most families, gifts sit inside the nil-rate band, so a death in year five doesn't mean tax on the gift — it means the gift uses up nil-rate band that the rest of the estate then can't use. Same destination, completely different mechanics, and the difference matters the moment you try to compute anything.

The one-paragraph version: when money is given away, a seven-year clock starts from the date of the gift — each gift has its own. If the giver survives all seven years, it's out of their estate. If they die earlier, the gift counts first against the £325,000 band, before the house and savings get their turn. Taper relief is real but only helps on gifts above the band — it's the edge case, not the rule.

There are also the small exemptions that never make headlines: £3,000 per person per tax year (with one year of carry-forward), £250 small gifts, wedding gifts within limits, and one I'd never once heard mentioned in any pub conversation — the rules allow unlimited regular gifts out of genuine surplus income, provided they don't dent the giver's standard of living. None of these even touch the seven-year machinery. Whether any of them fits a particular household is, as with everything here, an adviser question.

The two facts that stopped me mid-research

The first was the pension change. From April 2027, unused pension pots are due to come inside the estate for inheritance tax. For decades the industry's standard playbook ran "spend everything else first, leave the pension alone, it passes on tax-free". The rule change pulls the foundation out from under that playbook in under a year — and combined with income tax on inherited pensions where the owner dies after 75, the effective rate on a pension passed to children can reach the mid-60s percent. What any individual household does about it is exactly the kind of question the change has created for advisers. I'd vaguely heard of this change. I had no idea how violent the maths was until I built a calculator for it and watched the numbers come out.

The second stopped me harder, because it sits directly across our reader's plan: deprivation of assets. The seven-year rule has trained everyone to think of gifting as a clock you run out. Care funding has no clock. If a local authority concludes that a significant reason for a gift was to reduce what you'd pay towards care, it can assess you as though you still had the money — and there is no time limit. A gift made in good health a decade earlier is usually fine; the rules target gifts made when care needs were foreseeable. But "usually fine" and "fine" are different words, and the boundary between them is precisely where a solicitor or adviser earns their fee.

And one more, smaller but immediate: selling a rented-out flat usually means capital gains tax on the sale itself, reported and paid within 60 days of completion. The IHT clock and the CGT bill are entirely separate events, and the 60-day deadline catches people who assume it all gets sorted at self-assessment time. (Gifting the flat itself rather than selling it doesn't dodge this — a gift of property is still a disposal at market value.) I learned the 60-day rule three weeks ago. I will never forget it now.

Worth saying plainly: nothing in this post is advice, and these two areas — gifting near possible care needs, and the 2027 pension change — are exactly where you want a qualified adviser or solicitor in the room. We wrote about when an adviser is genuinely worth the fee; this is one of those times. What an app can do is make sure you walk into that meeting with the numbers already in front of you.

What his email turned into

Once I understood the rules, the software question became obvious: could WealthR model his actual scenario, end to end, in plain English? Sell the flat. Gift the cash. See the income gap. Fill it from pensions. Stress-test it. See what's left for the family under both pension regimes. None of that existed in the app a month ago. All of it does now.

There's a new Estate & IHT tab. The core calculation is free, because I think seeing your projected inheritance tax position is the kind of thing that should just be available: both nil-rate bands, the £2m taper, transferable spouse allowances, the 36% charity rate, and a toggle that shows your estate under today's pension rules and the April 2027 rules side by side — because anyone planning right now is planning across that boundary whether they like it or not.

When you sell a property in the app, there's now a "Gifted to family" option. It records the proceeds as a lifetime gift, starts the seven-year countdown from the date you set, and if you've named more than one recipient it splits the gift equally between them, each share with its own clock. Keep part of the proceeds back and the remainder simply lands in your portfolio as cash. The sell screen also flags the CGT-within-60-days point, since I now know how easy that is to miss.

On the Forecast tab you can model a planned disposal — pencil in selling or gifting the flat in 2029 rather than today, and watch the net-worth line step down before you've committed to anything. And the stress test toggle runs the whole plan through bad market weather, which matters rather a lot when you've just swapped a rent cheque for pension drawdown.

The deeper planning pieces are Pro (£4.99/month or £39.99/year): the lifetime gift tracker with a live countdown on every seven-year clock, who-gets-what wishes with a privacy switch for anything you'd rather keep off-screen when someone's looking over your shoulder, and an "if you died today" view that shows what each person would receive and what the tax bill would be. I want to be straight about that split: the IHT calculation costs nothing; the ongoing planning tools are part of how the app pays for itself.

What the app deliberately won't do

WealthR isn't authorised by the FCA and doesn't pretend to be. Everything in the Estate & IHT tab is an estimate built from published rules and the numbers you enter — it will show you the size and shape of the problem, and it will absolutely not tell you whether to sell a property, how much to gift, or how to weigh gifting against care risk. Those calls belong to you, your family, and a qualified adviser or solicitor who can see your whole picture.

I used to find that boundary slightly awkward to write out. Researching this post fixed that. The rules I've described — taper mechanics, deprivation of assets, the 2027 transition — interact with each other in ways where a generic answer can be a wrong answer, and a wrong answer here costs real families real money. The honest job of software is to make the numbers visible and legible. The judgement is a human job. He told me advisers rarely explain things in a way retired people can understand; my hope is that walking in with a clear picture already on screen turns that meeting into a conversation instead of a lecture.

If you're thinking about the care-cost side of the same question, the companion piece on what long-term care actually costs in the UK covers the four nations' rules and why Power of Attorney matters more than any spreadsheet. And there's more estate-planning work coming — the roadmap has the current queue.

Frequently asked

This is general information, not financial, tax or legal advice. Inheritance tax, capital gains tax and care-funding rules depend on individual circumstances and can change. WealthR is not authorised by the Financial Conduct Authority. For decisions about gifting, property disposals or estate planning, please consult a qualified FCA-regulated financial adviser or a solicitor.