Lifetime gifts – the 7 year rule (PETs)

If you make a gift more than seven years prior to your death the value is considered no longer part of your estate. Such a gift when made is considered a PET (a potentially exempt transfer) i.e. the gift will be exempt of any IHT charge if you live the seven years. If for example you make a lifetime gift of say £200,000 this will use up part of your £325,000 allowance. After seven years your full allowance is restored. You can thus make gifts in the hope you live the seven years. Seven year term assurance life policies can be taken out and written in trust for beneficiaries to hedge the risk of death within this period. If you propose to gift an asset other than cash you will need to consider any capital gains tax implications. If you propose to gift into a trust there will be an inheritance tax charge at the lifetime rate of 20% on any amount gifted in excess of the nil rate band allowance.