The Power of 7 and 2: Two Numbers That Can Transform Inheritance Tax Planning

Inheritance Tax (IHT) remains one of the most significant risks to family wealth in the UK. At 40%, it has the power to erode fortunes built over a lifetime of hard work. But within the complex rules, there are two numbers that can make all the difference: 7 and 2.

The Power of 7 – Potentially Exempt Transfers

Many families aren’t aware that outright gifts can fall outside of their estate entirely if the donor survives seven years. These are called Potentially Exempt Transfers (PETs).

Take the example of a couple we worked with. They wanted to gift £500,000 to their children but were concerned about the “what ifs”. What if they didn’t live the full seven years?

Working with Caldwell Financial, they made the gift but also arranged a gift inter-vivos life insurance policy. This covered the sliding scale of IHT liability during the seven-year period.

In short: the family could plan confidently, knowing the gift was protected from day one.

Gifting can be structured outright or through trusts, depending on family needs. The key is that with the right advice, the seven-year rule can become a cornerstone of long-term wealth transfer.

The Power of 2 – Business Property Relief

The second number is 2. Qualifying investments that benefit from Business Property Relief (BPR) can fall outside of the estate after just two years, provided the investment is still held at death.

For example, a business owner nearing retirement wanted to reduce a potential £1.2m IHT bill. Rather than locking assets away for seven years, they invested part of their liquid wealth into a BPR-qualifying portfolio. After just two years, those funds were exempt from IHT. Many of these portfolios also have built-in insurance or safeguards that protect investors during that two-year window, offering additional peace of mind.

Why 7 and 2 Matter Now

The tax environment is tightening, and more families are being caught in the IHT net. The 7-year gifting rule and the 2-year BPR rule provide powerful, flexible strategies that can be tailored to different family circumstances. Whether it’s safeguarding a large gift through insurance or using specialist portfolios to accelerate tax protection, these numbers can mean the difference between losing 40% to the Treasury and passing on wealth intact.

At Caldwell Financial, we help clients use the power of 7 and 2 to create clarity, control, and confidence in their estate plans.

Disclaimer:

Inheritance Tax/Estate Planning and Trusts are not regulated by the Financial Conduct Authority. Business Property Relief Schemes (BPR) and Alternative Investment Market (AIM) invest in assets that are high risk and can be difficult to sell, such as shares in unlisted companies. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.