The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This note explains the concept of a potentially exempt transfer (PET) and describes the tax treatment. A PET is not taxed when it is made and will become either taxable or exempt at some point in the future. For information on transfers which are taxed at the time they are made, see the Occasions of charge and Chargeable lifetime transfers guidance notes.
A PET is defined as a transfer of value (a gift), which:
is made by an individual during his lifetime
would otherwise be a chargeable transfer, and
satisfies certain conditions relating to the transferee, which differ depending on whether the transfer was made before or after 22 March 2006. These conditions are explained below
IHTA 1984, s 3A
The definition covers a personal gift. It also includes a ‘transfer of value’ which is not an actual transfer of property but results in an increase in value of the estate of another individual. This might arise, for example, when rights attaching to shares or property are altered.
The term ‘individual’ includes the beneficiary of a qualifying interest in possession (QIIP). See the Qualifying interest in possession guidance note. This is because such a beneficiary is treated for IHT purposes as beneficially entitled to the underlying trust property. Consequently, in addition to an outright gift from an individual, a PET is made when a QIIP comes to an end and the trust property passes to a transferee who meets the conditions described below. Note that it makes no difference whether the QIIP is terminated at the volition of the beneficiary by the trustees or by operation of the terms of the trust. See also the Qualifying interest in possession trusts ― IHT treatment guidance note.
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