Are gifts between members of couples that aren’t married or in a civil partnership treated as Potentially Exempt Transfers (PETs) for Inheritance Tax purposes?
If not married or civil partners, a genuine gift from one person to another is treated as a potentially exempt transfer (PET) for inheritance tax purposes, to the extent that it exceeds any available exemptions. For this to be effective and not be caught by the gift with reservation (GWR) of benefit rules, the donor must not benefit from the gift once transferred, i.e. they must gift beneficial ownership as well as legal ownership of the funds.
HMRC assess tax (income, capital gains and inheritance) on the ’beneficial’ owner of an asset (i.e. the owner that will truly benefit from it) which might not always be the same as the ‘legal’ owner of an asset.
For example, a higher rate tax payer might gift funds to a non-tax payer in order to benefit from the lower rate of income tax and/or capital gains tax, but if those funds were then used to invest in the donor’s pension, ISA or other investments, it seems clear that the ‘beneficial’ ownership hasn’t changed.