What is a potentially exempt transfer?

 

•  Published June 2020
• Last Will & Testaments

In most cases any gift larger than the exempt gift allowances, as previously mentioned, is a Potentially Exempt Transfer (PET). PETs can be given to the person concerned directly or as an investment for them.

This means that the donor, needs to live at least 7 years, from the date when the transfer is made, for this gift to fall outside of the estate and avoid tax.

For large gifts, or gifts which take the
donor’s cumulative total above the individual allowance, during the 7 year period the amount of Inheritance Tax payable reduces, the longer the time after the gift has been made. This is known as Taper Relief.

Years between gift and death Tax paid
less than 3 years 40%, 3 to 4 years 32%, 4 to 5 years 24%, 5 to 6 years 16%, 6 to 7 years 8%, 7 years or more 0%

Taper Relief does not apply to any gifts which fall below the nil rate band, ie. £325,000 In other words, taper relief is only given on the part of a gift over £325,000 or £500,000 if residential property is included under the rules of the Residential Nil Rate Band .

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