This is because HMRC (Inland Revenue as was) will allocates gifts to the estate for IHT purposes in the order in which they are given – the last gift being whatever is left over on death.

Consequently if you die within seven years, although you may get a discount on the gift, HMRC says this is X% × Nothing = Nothing!

Only if gifts made in the last 7 years are more than the IHT threshold will you get any benefit from the discount and it is geared up to make sure those which would give the most benefit are least likely to be used.

Meanwhile, the rest of the estate is sticking up above the parapet to get taxed at the full 40% until the seven years are up and the gift doesn’t count as part of the estate at all!

So you can either just insure any amount over the threshold or you can take out level cover to meet the IHT on the corresponding part of the residual estate for seven years (or chance it!).