how to redirect all the traffic on three domains to one domain in IIS?

In the IIS manager for the other sites (the ones you want to redirect) :

Click on local computer
Right-click the Web site you want to redirect
Click Properties.
Click on Home Directory
Under The content for this source should come from, click A redirection to a URL.
In the Redirect to box, type the URL of the site you want to direct to.
Select the The exact URL entered above check box to prevent the Web server from appending the original file name to the destination URL.

Hi,

Thus 3 website sat on the same server (IIS)?

If all web sites have their own server (IIS), you can just add entry in HTTP Redirect from the root of the web server you wish your client to REDIRECT FROM to destination web server.

You can do the same if source web in same IIS (which running on different IP or different port - yup it can still happen if you NAT/PAT it) but you have to select the web you wish do redirect from and set the destination to newly merged site.

You may like to set the redirection code to be permanent.

Other way to do is to make DNS CNAME entry to point to the web server to wish to be default. However, this will not change the URL name, which make it pointless for Google rank but it does help you if you planned to shutdown the old web server.

My 2 cent.

I had all the three websites on the same godaddy shared hosting webserver but I've moved them all to one VPS server which has IIS 7.5

Please see the attached screenshots of the redirect settings i have on IIS and the error i am getting
IIS-Http-Redirect.png
web-page-error.png

I can be mistaken... but... aren't you redirecting lifeintheuktest.co to itself?

This could explain why the redirection loop.

thanks for the comment but I don't understand how to redirect website using http redirect. As I need to redirect all the links from this website www.practicelifeintheuktest.co.uk to www.lifeintheuktest.co

 All I am doing is selecting the website www.practicelifeintheuktest.co.uk in IIS and click on http redirects feature. In HTTP Redirect window I select to top option which is Redirect requests to this destination: and in the text box I am entering the name www.lifeintheuktest.co 

which for some reasons is going in some loop.

Any ideas what i am doing wrong? thanks

In the image you provided the site selected is lifeintheuktest, not practicelifeintheuktest.

I have changed the sitenames please see it now in the attached image
IIS-2.png