Potentially Exempt Transfer (PET)
A gift to an individual that becomes exempt from inheritance tax if you survive 7 years. If you die within 7 years, it may be taxed.
A Potentially Exempt Transfer (PET) is a gift to an individual (or certain trusts) that becomes completely exempt from inheritance tax if you survive for 7 years after making it.
How PETs Work
- Gift is made during your lifetime
- No IHT is due immediately
- If you survive 7 years: the gift is completely exempt
- If you die within 7 years: the gift is added to your estate for IHT
Taper Relief
If you die 3-7 years after making a PET, taper relief reduces the tax:
| Years before death | IHT rate on the gift |
|---|---|
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
What Counts as a PET
- Gifts to individuals
- Gifts into disabled trusts
- Gifts into bare trusts
Gifts to most trusts are not PETs - they're chargeable lifetime transfers.
Common questions
Do I need to report PETs?
Not while you're alive. If you die within 7 years, your executors must report them on the IHT forms.
Is there a limit on PETs?
No limit on how much you can give as PETs. But all PETs in the 7 years before death are counted for IHT.
Can I give my house as a PET?
Only if you move out completely and don't continue to benefit. Otherwise it's a gift with reservation and stays in your estate.
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