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IHTM04057 | Lifetime transfers: what is a potentially exempt transfer?

From HM Revenue & Customs · Inheritance Tax Manual

Subject to certain exceptions, a potentially exempt transfer (PET) is a lifetime transfer of value that satisfies three conditions. They are that

  • the transfer is by an individual (IHTM04053) on or after 18 March 1986

  • it would be a chargeable transfer (IHTM04027) apart from IHTA84/S3A (or, if only partly chargeable, is a PET to the extent that it would be chargeable), and

  • it is a gift to another individual or to a specified trust, (IHTM04058).

So, the starting point is a transfer of value (IHTM04024) within IHTA84/S3 (1). This is reinforced by IHTA84/S3A (6) which provides that, except as mentioned below, when tax is charged as if a transfer of value had been made, that deemed transfer (IHTM04025) cannot be a PET. So, as a general rule

  • any transfer of value within IHTA84/S3 (1) can be a PET if the three conditions are satisfied, and

  • a deemed transfer of value cannot be a PET even if those conditions are satisfied.

  • a transfer of value which is wholly covered by an exemption cannot be a PET, it is an exempt transfer. (IHTM04026)

But the legislation also specifically provides for