what is the key difference between potentially exempt transfers and CLT, how do i identify or differentiate them?
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TXpotentially exempt transfers
PETs are paid directly to individuals. CLT's (Chargeable Lifetime Transfers) are paid to a trust.
If it's a PET, no tax is due, unless the donor dies within 7 years, and the gift is more than the available nill rate band.
If it's a CLT, tax of 20% is due, after taking into account any available nill rate band. If the trust pays the tax, it is simply 20% of the gift. If the donor pays the tax (if I understand it correctly), the tax paid is also a gift, so tax has to be paid on that amount too. Basically, the tax payable by the donor is 25% of the gift. The gross amount of the gift is therefore the value of the gift plus the value of the tax paid. It's important to keep track of the gross value of the gifts, in case the donor dies within 7 years, and then 40% tax may need to be calculated on the gross transfer (minus any amount previously paid).
If it's a PET, no tax is due, unless the donor dies within 7 years, and the gift is more than the available nill rate band.
If it's a CLT, tax of 20% is due, after taking into account any available nill rate band. If the trust pays the tax, it is simply 20% of the gift. If the donor pays the tax (if I understand it correctly), the tax paid is also a gift, so tax has to be paid on that amount too. Basically, the tax payable by the donor is 25% of the gift. The gross amount of the gift is therefore the value of the gift plus the value of the tax paid. It's important to keep track of the gross value of the gifts, in case the donor dies within 7 years, and then 40% tax may need to be calculated on the gross transfer (minus any amount previously paid).
You have correctly explained these.
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