Gifts with reservation of benefit

Lifetime gifts are an effective way for individuals to reduce the value of their estates and their consequent exposure to inheritance tax. When examining the application of inheritance tax to such gifts the basic position is that a lifetime gift made by one individual to another will represent a potentially exempt transfer (PET) and generally attract no immediate charge. If the donor survives for seven years from the date of the PET its value will then fall outside the donor’s death estate for inheritance tax purposes. However if the donor dies within that seven-year period the PET will ‘fail’ and become chargeable at the applicable rate (currently 40%) subject to the availability of any relevant exemptions and/or reliefs as well as a tapering of the rate if the gift was made more than...