Many transfers however, are not immediately exempt but are potentially exempt – the ‘potentially exempt transfer’, or PET. This means that IHT is not payable now but could be at some time in the future.
What is a potentially exempt transfer UK?
Gifts to individuals that aren’t immediately tax-free will be considered as ‘potentially exempt transfers’. This means that they will only be tax-free if you survive for at least seven years after making the gift. If you die within seven years, the gift will be subject to Inheritance Tax.
Is a gift of shares a potentially exempt transfer?
When the gift is first made, it’s called a Potentially Exempt Transfer as, assuming you live for a further seven years, there won’t be any IHT due on it. If you die within seven years, it’s called a Chargeable Transfer.
How many potentially exempt transfers can I make?
These transfers are potentially exempt from Inheritance Tax, and there is no limit on such transfers. This is an excellent way of transferring assets that you do not need to keep in your estate.
Is property a potentially exempt transfer?
If you were to make an outright gift of the house to your child in a bid to reduce the value of your estate, it would be treated as a “potentially exempt transfer” (or PET) for the purposes of inheritance tax (IHT).
Do you have to pay tax on a potentially exempt transfer?
These gifts are called ‘potentially exempt transfers’, because tax might be payable, depending on whether you survive seven years since the gift. Potentially exempt transfers are explained further below. Another way to gift money to your children is through a mortgage deposit, but you should take independent advice before going ahead with this.
How are Lifetime Transfers exempt from inheritance tax?
These lifetime transfers to individuals are called Potentially Exempt Transfers (PETs) and become totally exempt once the donor has survived for seven years from the date of the gift. You must have given up all rights to the asset for it to fall within the PET rules.
When does a pet transfer become potentially exempt?
In its manuals, HMRC states that “most lifetime transfers are potentially exempt transfers (PETs)”. PETs enable an individual to make gifts of unlimited value which will become exempt (i.e. escape tax) if the individual survives for a period of seven years.
Is the transfer of value to Alice an exempt transfer?
The transfer of value to her husband is an exempt transfer. However, as she died within seven years of making the gifts to her children, they become chargeable transfers. The gift to Alice uses up the first £197,000 of her nil rate band of £325,000 (£200,000 gift less annual exemption of £3,000).
