Using a PET transfer to cover IHT

Mickey666

Rigormo2 said:

To KeepPedalling,

I thought that IHT had to be settled before an estate could be passed on, hence the desire to ensure my daughter has sufficient readies at the time of our decease to cover the IHT.

Secondly, if we gift the PET, then the IHT willl reduce over time (up to a max reduction after 7 years). Got to be a good thing from my daughter's point of view.

1.  Yes, but in this case, your estate will clearly have sufficient liquid funds to pay any IHT liability directly since it is already available to gift to your daughter.  The executor can use the etstate funds to pay IHT before distributing the remainder according to your will.

2. Also yes, PETs are a good thing in general - although bear in mind there's no guarantee she will keep the money aside to pay the IHT and you lose control of the gift once it is made.

I think his whole IHT thing is a red herring.  It doesn't matter if the money you've earmarked to pay it comes directly from the estate or if you gift it to your daughter - the IHT will basically be paid with the same money either way and the distribution of the remaining estate will not be delayed as a result - which seems to be your main concern.

However, there are completely separate, and very good reasons, to gift the money to your daughter, but that's for the purpose of REDUCING your estate's IHT liability rather than ensuring it get's paid

I agree with keepPedalling's post.  You're basically doing the right thing but it's not really necessary for the reasons you've described.

Rigormo2

Thanks folks for all your contributions.

I had not realised that the PET is first set against the 325,000 allowance and that taper relief only applies to that part of a  PET that is beyond the 325K allowance. So taper relief is only relavant to large (> 325K) gifts.

Also that IHT can be paid by the administrator from the liquid part of the estate before distributing the net estate to the beneficieries.

Much clearer now. Thanks you.