PET and illustration

In this lesson

1. 0:00 Potentially exempt transfers explained
2. 0:10 How to calculate transfer of value
3. 0:20 Applying IHT exemptions to gifts
4. 0:35 Seven-year rule and IHT liability
5. 0:48 Worked example: valuing unquoted shares
6. 1:57 Applying exemptions to the transfer

About this lesson

A PET is a gift from one individual to another where you must first calculate the transfer of value, then apply relevant exemptions such as the marriage exemption, small gifts exemption, and annual exemption. If the donor dies within seven years, the gift becomes subject to IHT and the recipient may face a liability. The key to valuing a PET is understanding the fall in value principle: compare what the donor owned before the gift (their full shareholding) with what they own after (their reduced shareholding), and the difference is the transfer of value. Using a worked example with share transfers, you'll see how to avoid common pitfalls—such as being tempted to use an intermediate shareholding value—and correctly identify the before and after positions to calculate the true IHT exposure. This concept is essential for the TX and ATX papers, where PETs frequently appear in exam questions involving lifetime gifts and unquoted investments. Mastering this technique will help you handle complex gift scenarios with confidence and ensure you're calculating IHT liabilities accurately.

Duration: 2m