Mark McLaughlin points out that lifetime gifts can have a much longer knock-on effect for inheritance tax purposes than many people assume.
Many taxpayers have heard of a ‘seven-year rule’ for inheritance tax (IHT) purposes. It is widely assumed that lifetime gifts escape the IHT net if the donor survives at least seven years after making the gift.
Whilst this is generally true, what happens if the donor dies within seven years of making gifts – is it only gifts made in the last seven years that are considered?
As with most tax questions, the answer is not necessarily straightforward.
The seven-year rule
The seven-year rule refers to ‘potentially exempt transfers’ (PETs), such as a cash gift from one individual to another.
A PET made seven years ago or more becomes an exempt transfer.
