Chargeable Lifetime Transfers vs. PETs: Choosing the Right Gift
Large gifts to trusts are taxed up-front at 20%, but they can still beat the 40% bill later. Here's the maths.
Definitions
A PET is a gift to an individual, potentially exempt after 7 years. A CLT (e.g. gift to most trusts) is taxed immediately at 20% on the value above the NRB.
Why pay 20% now?
If the donor survives 7 years, no further IHT applies and growth occurs outside the estate. For fast-growing assets the arithmetic favours a CLT despite the entry charge.
Worked example – £600k gift to discretionary trust
- Immediate IHT: (£600k – £325k) × 20% = £55k
- After 10 years growth at 6% p.a. → £1.073m
- Had donor kept the asset, the extra £748k growth would be taxed at 40% = £299k
Result: £244k net tax saved and control retained by trustees – but watch the 10-year periodic charges.
Need Professional IHT Advice?
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