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Inheritance Tax – Recording potentially exempt transfers

Fotolia_5400131_S-2A potentially exempt transfer (PET) is not liable to inheritance tax when made, and it is treated as an exempt transfer unless the person who made the gift (the transferor) dies within seven years.  This means that there is no requirement to notify HM Revenue and Customs (HMRC)  on the making of a PET or to deliver an inheritance tax account for a PET.

HMRC will not enter into discussions about, or determine the value of, a PET before the transferor’s death makes that PET chargeable.

It should be remembered, however, that there may be a charge to inheritance tax in respect of the PET in some cases, and that on the death of the transferor details of PETs made within the previous seven years will need to be available.  It is therefore important to record all PETs in writing.

Tax on a PET that proves to be a chargeable transfer takes account of other chargeable transfers made within seven years before the PET.

Therefore in some cases, details of earlier transfers which, when made, were chargeable transfers may also be required, and the period back from the transferor’s death may extend to 14 years.  Records of all gifts, whether chargeable transfers or PETs, should therefore be kept for a minimum of 14 years.

By Karen Shakespeare, 3rd May 2013.

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