Inheritance Tax Act 1984 section 3A

Potentially exempt transfers

Section 3A defines potentially exempt transfers (PETs) and sets out the conditions under which lifetime gifts may be treated as exempt from inheritance tax.

• A PET is a lifetime gift by an individual to another individual, into a disabled trust, or (in certain circumstances) into a bereaved minor's trust, which would otherwise be a chargeable transfer.
• A PET is not charged to tax at the time it is made — it is assumed to be exempt until either seven years pass or the transferor dies within that period.
• If the transferor survives for seven years or more after making the gift, the PET becomes a fully exempt transfer; if the transferor dies within seven years, it becomes a chargeable transfer (a "failed PET").
• Where another provision of the Act deems a charge to arise as if a transfer of value had been made, that deemed transfer cannot qualify as a PET.