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Tax Insider Tip: Potentially Exempt Transfers

30th Mar 2016
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Inheritance tax is essentially a voluntary tax, in that with proper planning there is no need for your estate to pay any tax on your death.

One of the most useful tools is the potentially exempt transfer, or PET.

Under the PET rules any gift made to an individual is exempt from inheritance tax if you survive seven years from the date of the gift. If you die before seven years have elapsed, the amount charged to tax is calculated on a sliding scale, with a lower amount being taxed the longer you survive after making the gift. It is also possible to protect against the IHT liability in the interim period by taking out decreasing term assurance, which basically covers the reducing IHT liability over the seven years.

Example:
Gerald makes PETs to his children, Lucy and Lauren, of £250,000 each on 2 May 2009.

Provided he survives until 2 May 2016, these gifts will drop out of his estate and he will have saved his estate from paying inheritance tax of up to £200,000 (40% of £500,000) on this money.

 

This is a sample tip taken from our 136 page guide:
101 Ultimate Tax Strategies Revealed.

Click here to receive a free copy of this tax saving guide today!

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