Potentially exempt transfers

Produced by a Tolley Trusts and Inheritance Tax expert

Trusts and Inheritance Tax

Guidance

This guidance note explains the concept of a potentially exempt transfer (PET) and describes how it is treated for IHT purposes. A PET is not taxed when it is made and will become either taxable or exempt at some point in the future. For information on transfers which are taxed at the time they are made, see the Occasions of charge and Chargeable lifetime transfers guidance notes.

What is a PET?

A PET is defined as a transfer of value (a gift), which:

•
is made by an individual during their lifetime
•
would otherwise be a chargeable transfer, and
•
is a gift to an individual, a disabled trust or a bereaved minor’s trust on the coming to an end of an immediate post death interest

IHTA 1984, s 3A

An ‘individual’ includes the life tenant of a qualifying interest in possession (QIIP). See the Qualifying interest in possession guidance note. This is because such a beneficiary is treated for IHT purposes as beneficially entitled to the underlying trust property. Consequently, in

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