When you give something away during your lifetime, the gift can still count towards inheritance tax if you die within seven years. A Potentially Exempt Transfer — a PET — is the kind of gift that escapes tax entirely, provided you live long enough.
The seven-year rule, in plain terms
A PET is a gift made by one individual to another individual (or into certain trusts). At the moment you make it, the gift is potentially exempt — neither taxed nor formally settled. Its outcome rests on a single question: do you survive for seven years afterwards?
- Survive seven years — the gift falls fully outside your estate. No inheritance tax is due on it.
- Die within seven years — the gift is brought back into your estate for the tax calculation, and may be taxed.
What counts as a PET
Most outright gifts between people are PETs. Common examples include:
- Cash given to a child or grandchild
- Transferring a property into someone else's name
- Giving away shares, antiques or other valuables
Two important exceptions: gifts to your spouse or civil partner are normally exempt with no time limit at all, and gifts into most trusts are treated as chargeable lifetime transfers rather than PETs — with different rules.
How much can you give?
There is no upper limit on the size of a PET. You could give away £10,000 or £1,000,000 and both are potentially exempt. The amount only becomes relevant if you die within seven years, at which point larger gifts can use up your £325,000 nil-rate band before the rest of your estate is taxed.
Track your gifts automatically on EverLedge — free to start
Record each gift once and watch it taper toward its seven-year exemption, with the dates your executors will need kept safely in one place.
What happens if you don't survive seven years
The gift is added back to your estate for the inheritance tax calculation. Gifts are set against your nil-rate band first, in the order they were made. If tax is then due on a gift, taper relief can reduce it — but only on gifts made more than three years before death. Taper relief reduces the tax payable, not the value of the gift itself.
| Years between gift and death | Tax charged |
|---|---|
| Less than 3 years | 100% |
| 3 to 4 years | 80% |
| 4 to 5 years | 60% |
| 5 to 6 years | 40% |
| 6 to 7 years | 20% |
| 7 years or more | 0% |
Why records matter
A PET only becomes relevant years later — and usually after you have died. That means the responsibility for proving it falls to your executors. The date, the amount and the recipient of every gift need to be clear, or HMRC may treat the gift conservatively. A simple, dated record made at the time of each gift removes that uncertainty entirely.
In short
- A PET is a lifetime gift that becomes fully exempt once you have survived seven years.
- There is no upper limit on the amount you can give.
- Die within seven years and the gift counts towards your estate, with taper relief on older gifts.
- Keep a dated record of every gift — your executors will rely on it.
This article is general information about UK inheritance tax and is not personal or legal advice. Rules and thresholds can change. Consider speaking to a qualified adviser about your own circumstances.