Saving inheritance tax by gifting: Potentially Exempt Transfers

Saving inheritance tax by gifting: Potentially Exempt Transfers

Thursday, 11 July 2019

In my previous blog I looked at wholly exempt gifts up to certain designated levels and gifts out of income.

In addition, further gifts above the designated limits are still permitted. These may typically be cash or shares and are known as Potentially Exempt Transfers (PETs). The rules about PETs are a bit more complicated but, in summary, to be free of inheritance tax you need to survive the gift by at least seven years; although what’s known as taper relief arises after year three.

Taper relief is very useful; for example, if you’re a wealthy grandparent heading towards an inheritance tax liability on your estate, consider making a cash gift to help a grandchild pay off student debts or help buy their first home. You can potentially remove (in part or fully) the value of the gift from the estate.

In addition, have you thought about gifts of art, antiques and jewellery? All form part of the estate and could potentially incur a 40% inheritance tax charge at some point. You’ll need to survive the gift by seven years for the value to come out of the estate. However, you may need to consider any capital gains tax (CGT) implications. This is something we can advise you on. We can also liaise with your financial adviser and consider whether there are any insurance options to protect the inheritance tax risk.

Remember to keep a record of the gift so the executor of your will has the relevant proof.

We regularly work with clients to help them understand their income and potential retirement costs. That way, you can make an informed, objective decision on the level of gifts that can be made. Make sure you’re comfortable making the gifts and recognise that they may impact your standard of living and future income levels. The last thing you should do is give away too much. Tax planning is one thing; leaving yourself impoverished is another!

Need help?

For more information on how we can help with inheritance tax, please speak to me or to your usual MHA Larking Gowen contact.

Call 0330 024 0888 or email

Sally Farrow

Personal Tax Senior Manager


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