Glossary · UK
What is Potentially Exempt Transfer (PET)?
A lifetime gift to another individual that becomes fully exempt from Inheritance Tax if the giver survives seven years after making it.
Full Definition
A Potentially Exempt Transfer (PET) is an outright lifetime gift from one individual to another that is free of Inheritance Tax provided the person making the gift lives for seven years afterwards. If they die within seven years, the gift becomes chargeable and is set against the Nil Rate Band (GBP 325,000 for 2026/27), potentially using it up before the rest of the estate. Tax on the gift itself may be reduced by taper relief where death occurs between three and seven years after the gift, though taper only reduces tax actually due, not the gift's value. PETs are central to estate planning because regular, well-timed gifts can move wealth out of an estate that would otherwise be taxed at 40% on death. To work, the gift must be genuine, with no continued benefit retained by the giver. Keep clear records of dates and amounts, as executors must report PETs made in the seven years before death.