IHT Annual Exemption - when is it used?
benjaminfabi
Moderator
Hi,
John gifts £3,000 to his son on 6 April 2018 and £10,000 to his daughter on 1 October 2018. Both are PETs. Assume no exemption from the previous year and no other gifts. If John had died yesterday (16 July 2025), the PET to his son has fulfilled its potential and is exempt - it's not included in the estate. What is the IHT value of the failed PET to his daughter:
- £7,000
- £10,000
In other words, once a PET that used the £3,000 exemption drops out of the estate during a tax year, does that exemption become available to failed PETs from the same tax year?
I feel like I should know this, and that the answer is no, but I'm doubting myself.
Benjamin Fabi
Comments
Pretty certain it remains at £10,000.
Just because a gift survives 7 years, doesn't change the use of the annual gifting allowance.
The annual gifting allowance is strictly used in chronological order.
The only exception is when you make multiple gifts on the same day, in which case, I believe the allowance and NRB is then shared amongst the recipients.
Also, if you are assuming "no exemption from the previous year" (i.e. 2017/18), then you would have to assume it comes back if you go down the "drop off" calculation for the 2018/19 allowance, meaning it would be £4,000 and not £7,000.
Thanks both - I think I was just having a senior moment!
Yes chronological usage unless simultaneous gifting (which is complicated, technically if you bank transfer / cheque it's in the order of keying / clearing at the other end etc)
Your first gift wasn't a PET it was exempt.
Just separate to this, can the small gifting exemption of £250 be used for trusts, or does this have to be outright gifts to individuals?
Essentially, could you set up 10 loan trusts on subsequent days, and then waive £250 from each loan each year (so waiving £2,500 overall), or does this gift exemption simply not apply for trusts?
No - the rules are that it cannot be combined with any other exemptions, or used to cover transfers into trust or as part of a larger gift. Only the £3,000 exemption can be used for trust planning, or the normal expenditure from income