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There are specific rules regarding the liability to Inheritance Tax (IHT) for transfers made during an individual’s lifetime. Generally, most gifts made during a person’s life are not taxed at the time they are given. These lifetime transfers are called ‘potentially exempt transfers’ or ‘PETs’.

These transfers become fully exempt from IHT if the person survives for more than seven years after making the gift. However, if the person dies within three years of making the gift, the IHT is calculated as if the gift was made at the time of death. If death occurs between three and seven years after the gift, a tapered relief applies, reducing the tax liability.

IHT may also be charged if the person making the gift retains some benefit from it. For example, if an elderly person gives their home to their children but continues to live there rent-free, the tax authorities will not consider it a genuine gift. In such cases, the ‘gift’ would still be subject to IHT, even if the person dies more than seven years after the transfer.

Additionally, transfers into most types of discretionary trusts, transfers involving companies, and transfers into most types of interest in possession trusts are immediately subject to IHT.

The CB Reid team can help you with your personal tax affairs.  We can advise you on how to maximise your personal and family wealth by minimising inheritance tax.   Please contact a member of our team to discuss minimising your IHT with estate planning.