What is a potentially exempt transfer?
Answered 11 March 2026
Here is a comprehensive answer on what a potentially exempt transfer (PET) is for Inheritance Tax purposes.
What is a Potentially Exempt Transfer (PET)?
What the law says
The statutory definition of a potentially exempt transfer is found in IHTA 1984, s. 3A.
For transfers made on or after 22 March 2006, a PET is a transfer of value that:
- is made by an individual;
- would, apart from s. 3A, be a chargeable transfer; and
- constitutes, to the relevant extent:
- (i) a gift to another individual,
- (ii) a gift into a disabled trust, or
- (iii) a gift into a bereaved minor's trust on the coming to an end of an immediate post-death interest.
For transfers made on or after 18 March 1986 but before 22 March 2006, the definition was broader and also included gifts into accumulation and maintenance trusts.
A transfer of value qualifies as a gift to another individual to the extent that:
- the value transferred is attributable to property which, by virtue of the transfer, becomes comprised in the estate of that other individual; or
- the estate of that other individual is increased by virtue of the transfer.
Importantly, the conditional exemption provisions of s. 30 IHTA 1984 are disregarded when determining whether a transfer is a PET.
HMRC guidance / practice
HMRC describes PETs as transfers that are "potentially" exempt because their final tax status depends on whether the transferor survives for seven years after making the transfer:
- If the transferor survives seven years, the PET becomes a fully exempt transfer — no IHT is due.
- If the transferor dies within seven years, the PET fails and becomes a chargeable transfer, with IHT becoming due.
HMRC contrasts PETs with immediately chargeable transfers (e.g. gifts into most discretionary trusts), which attract IHT at the time they are made. Most lifetime gifts to non-exempt beneficiaries are PETs.
Where a PET fails (i.e. the transferor dies within seven years), any IHT due is payable six months after the end of the month in which the transferor's death occurs.
In summary: A PET is a lifetime gift by an individual to another individual (or into certain qualifying trusts) that is treated as exempt at the time it is made, but which will become chargeable to IHT if the transferor dies within seven years of making it.
Citation sources
Inheritance Tax (IHT) is the successor to Capital Transfer Tax (CTT), which was an integrated lifetime transfer and estates tax. Under CTT, all lifetime transfers were charged to tax when they were made. Under IHT, certain types of lifetime transfer remain taxable when made. Most are only taxable if the transferor dies within seven years of making the transfer. These transfers are known as potentially exempt transfers, or PETs, (IHTM04057) because they will become exempt transfers if the transfe
Other cases in which the tax is due six months after the end of the month in which the transferor’s death occurs include Potentially exempt transfers (PETs) (IHTM04057) which prove to be chargeable transfers tax charged under the gift with reservation (GWR) (IHTM04071) provisions treated either as part of the transfer on death, and so within IHTA84/S226 (1), or as failed PETs, and so within IHTA84/S226 (3A) any extra tax payable on a chargeable transfer under Chapter III Part III IHTA 1984 (sett
Inheritance Tax (IHT) is primarily a tax charged on the assets owned by a person on their death (IHTM04043). If the tax did not also apply to lifetime transfers (IHTM04051), it could be avoided by transfers of a person’s assets made shortly before death. So, to protect the death charge, IHT can also be charged on transfers: made within seven years of a person’s death, or where the person who made the transfer continues to enjoy some benefit from the asset, for example by living in a house that t
Most lifetime gifts to non-exempt beneficiaries are Potentially Exempt Transfers (PETs) (IHTM04057) and so become chargeable only if the transferor dies within seven years of the transfer. If the transferor survives the transfer by seven years, the PET becomes an exempt transfer. This result was considered unsatisfactory on policy grounds if the transferor continued to receive a benefit from the gifted property (IHTM04030) - for example where the transferor gives their residence to their childre
PART I GENERAL Main charges and definitions Potentially exempt transfers. 3A 1 Any reference in this Act to a potentially exempt transfer is a reference to a transfer of value— a which is made by an individual on or after 18th March 1986 but before 22nd March 2006 ; and b which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer); and c to the extent that it constitutes either a gift to another individual or a
PART II EXEMPT TRANSFERS CHAPTER II CONDITIONAL EXEMPTION Conditionally exempt transfers. 30 1 A transfer of value is an exempt transfer to the extent that the value transferred by it is attributable to property— a which, on a claim made for the purpose, is designated by the Treasury under section 31 below, and b with respect to which the requisite undertaking described in that section is given by such person as the Treasury think appropriate in the circumstances of the case or (where the proper