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If the transferor dies within seven years of making the PET (IHTM04057),

• the potential exemption is lost and the PET becomes a chargeable transfer
• the transfer must be cumulated with the death estate (IHTM14503)
• the transfer must be cumulated with any later lifetime transfers, and
• the value transferred (after cumulation with earlier transfers) may become chargeable in its own right (IHTM14513).

Example

Matthew makes the following transfers (after exemptions and reliefs):

拢170,000 to his son, Kenneth, in August 2007

拢170,000 to his daughter, Lalage, in February 2008.

Matthew dies with a death estate of 拢225,000 in October 2010 when the IHT nil rate band is 拢325,000.

The gift to Kenneth becomes a chargeable transfer but is covered by the IHT nil rate band. It uses 拢170,000 of the nil rate band leaving only 拢155,000 to set against the gift to Lalage. The excess of 拢15,000 becomes chargeable in its own right and is cumulated with the death estate (拢225,000) to calculate the IHT payable. IHT is charged on the cumulative total of 拢240,000.

Although the transferor鈥檚 death triggers the charge to tax,

• you do not treat the lifetime transfer as a transfer made on death for the general purposes of the IHTA
• you do not deem the gifted property to be part of the transferor鈥檚 death estate, except where the benefit of a Gift with Reservation (GWR) (IHTM14301) continues to the date of death.

The guidance at (IHTM30011) explains who is liable to pay the tax on a PET