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If a person survives 7 years after making a PET, the transfer is fully exempt and ignored for the purpose of IHT. But it is stated that it could still use up annual exemptions; could you please give me an example to illustrate this?
And also please refer, Chapter 24 – Inheritance Tax of the OT Course Notes, Example 1: why is the PET made to Joe’s son on 8 December 2010 not considered for IHT under lifetime transfers chargeable on death?
Thank you!
Hi.
I’ve just had a look at example 1, and it looks to me that the PET to Joe’s son was considered. Firstly, the value of the transfer after the exemptions is £29,000. The exemptions are £5000 (gift to a son in respect of a marriage), £3,000 annual exemption c/f from previous year, and £3,000 annual exemption for present year. On death, the transfer of £29,000 is within the nil rate band, so no payment is due on it. The nil rate band is £29,000 less as a result of this gift though.
Regarding your first question, you are correct in saying that transfers can use up the nil rate band, even if they happen more than 7 years before death. As an example, if in example 1 the wedding gift to Joe’s son was made April 1 2004 (eight years before death), then that gift would not be considered for IHT. However, the gift on 15 July 2008 will have to look back 7 years to see what nil rate is available, and the wedding gift falls within this period, and has used up £29,000.
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