Gifts liable to IHT

The one thing you may remember about the IHT rules for gifts is: “lifetime gifts are PETs”. A PET is a potentially exempt transfer which is only subject to IHT if the donor dies within 7 years of the date of the gift.

However, it is only gifts made to individuals that count as PETs. Gifts to organisations, trusts or companies are not PETs, and will be subject to IHT at 20% during the donor’s lifetime, unless a separate exemption applies.

There are specific exemptions for gifts to charities, to housing associations, for national purposes, maintenance for historic buildings and to political parties. Gifts which don’t qualify for an exemption, and are not PETs, might include those made to hospitals which not registered as a charity, charities registered outside of the EU or donations to a political lobbying organisation or movement.

Lifetime gifts will not be chargeable to IHT where they fall within the annual exemption of £3,000, are normal expenditure paid out of income, or are covered by the nil rate band of £325,000. Any capital gift in excess of the nil rate band is potentially taxable even if that gift is made during an individual’s lifetime, it depends who has received it.

Written by the Tax Advice Network