Inheritance Tax - Exemptions & PETs

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Inheritance Tax - Exemptions & PETs

There are a number of transfers and gifts that may be made either while still living or as part of an estate after death that are exempt from inheritance tax.

Potentially Exempt Transfers (PETs) - are gifts made during a lifetime, exceeding the annual gift allowance of £3,000 (detailed below) but within the nil rate band. Provided the donor survives for a further 7 years, no tax will be payable and the gift becomes a PET. In the event of death within the 7 years however, tax will be payable but if this occurs after 3 years, taper relief is available, thus reducing the amount of tax due. Up until the 2006 budget, gifts into certain types of trust were classed as PETS however this will now only apply to trusts set up for a disabled person.

Other exemptions include:

• Spouse to Spouse - generally, transfers between husbands and wives or between civil partners are exempt however, in some cases where an IIP trust is in force or if there is no will (in which case a trust is automatically set up for the deceased's family), the trust may attract a new type of tax charge.
  
  
• Annual Gifts - up to £3,000 per year in total to unspecified beneficiaries are free from tax. Amounts over this will be subject to the 7 year rule as above.
  
  
• Small gifts of £250 per year may be paid to any number of people of choice. A sum exceeding this will be counted towards Annual Gifts.
  
  
• Marriage or Civil Partnership Gifts - parents may each give the couple £5,000, grandparents or great grandparents £2,500 and others may give £1,000.
  
  
• Other Gifts - donations to charities, universities, places of public interest - galleries, museums etc and political parties are exempt from all Capital Gains Tax and Inheritance Tax.
  
  

If you are in any doubt about what you are entitled to pass on either during your lifetime or as part of your estate, without subjecting your family to a significant tax bill, please complete our Quick Enquiry Form and we will arrange for one of our independent financial specialists to contact you. We can also help you to make a will. If you prefer, you can call us on local rate 0845 108 0505.

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