Glossary · UK
What is PETs (Potentially Exempt Transfers)?
Lifetime gifts that become fully IHT-free if the donor survives seven years.
Full Definition
A Potentially Exempt Transfer (PET) is an outright gift from one individual to another (or to certain trusts before 22 March 2006). If the donor lives seven years after making the gift, it falls completely outside their estate for Inheritance Tax. Die within seven years and the gift is brought back into the estate, eating into the £325,000 nil-rate band first. Tax on gifts above the NRB is tapered: 0–3 years 40%, 3–4 years 32%, 4–5 years 24%, 5–6 years 16%, 6–7 years 8%. PETs are unlimited in size, but the £3,000 annual gift exemption and small-gifts rules can shelter smaller transfers immediately.
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Disclaimer: Definitions are for guidance only. For decisions about your tax, savings, property or pension situation, always consult a qualified professional or refer to gov.uk.