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Potentially exempt transfers (PETs)

I3.511 Cumulation, tax rates and taper relief

On the death of a person, any potentially exempt transfers (PETs) made within seven years before his death become chargeable transfers (at the rates described below)¹ — these are commonly called 'failed PETs'.

The tax on PETs becomes payable six months after the end of the month in which the death of the transferor occurred², and is primarily payable by the transferee³ (see I10.111). As it becomes a chargeable transfer it also enters the transferor's cumulation of chargeable transfers for the purposes of charging IHT on subsequent transfers, notably his estate on death⁴.

In the computation of this IHT charge on a PET which becomes chargeable, it is aggregated with chargeable transfers made in the seven years preceding the date of it⁵. Thus such a transfer may be aggregated with chargeable transfers made within seven years before it but more than seven years