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Inharitance Tax
Potentially Exempt Transfer Vs Chargeable Lifetime Transfers. (PET vs CLT)-Differences
-Similarities
-When does a transfer is considered as PET and when CLT?PET is lifetime transfer/gift of asset to an individual.
CLT is transfer of asset to trust.PET is exempt from IHT during donor’s lifetime unless donor dies within 7 years after the gift. Then it becomes chargeable.
CLT is chargeable during donor’s lifetime and also additional charges when at his death. Tax at 25% for donor or 20% if donee agrees to pay tax.When a transfer is assessed as PET and when CLT ?
Could it be that a done makes a transfer as PET and not pay any IHT during his lifetime and after his death (which is less than 7 Yrs) to change its characterization to CLT and IHT needs to be paid ?
1-You don’t pay any tax on a PET during lifetime, and if the donor lives for next 7 years after making the transfer there is no tax on death either. (Hence the name – Potentially Exempt Transfer).
2-If the donor dies within 7 years rate of 40% applies.
3-If the donor survives for atleast 3 years after making the transfer, the IHT on death is reduced by Taper Relief.(Go through the notes to see what that is)
For answer to your first question read the first reply by @aimaraljafriAll transfers made to :
1- Spouse/Civil Partner
2-Charity
3-Qualify political Party
ARE EXCEMPT.All transfers made to physical persons other than Spouse/Civil they are characterized as Potentially Exempt Transfers. (PET)
Always all transfers made to TRUST’s are characterized as Chargeable Lifetime Transfers. (CLT)
A CLT could never be characterized as PET as it is a transfer made always to a trust. (for exam purposes)
oogabooga kindly note that if the PET exceeds the nil bad rate (which for FY 2012/13 is 325000£) then you pay IHT tax of 40% on the excess amount. (you’re not except at all). If the donor does not survive for more than 7 years then the tax paid on the excess transfer receives a relief according to Tape Relief .
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