There were significant changes made to Inheritance Tax in the latest budget. Farming families are likely to be the hardest hit but the ripples spread much wider.

Farmers are starting to be PET lovers. That is using Potentially Exempt Transfers (PETs) to avoid the potentially damaging IHT liabilities on unplanned deaths.

A PET  is a gift or transfer of unlimited value which has the potential to be exempt. Outright gifts such as cash sums and other assets are PETs.

The rules state that the individual has to survive for 7 years after making the gift for it to be exempt. So, if the individual survives for 7 years, the PET escapes IHT altogether. PETs out with the 7 year period will never be brought into the IHT calculation.

If the individual dies within 7 years of having made the gift, it “fails” and becomes a Chargeable Transfer (sometimes known as “failed PET”) for IHT purposes. This means that it will be taken into account in the individual’s IHT calculation.

The alternative to a Potentially Exempt Transfer (PET) is a Chargeable Lifetime Transfers (CLT) and these comprise transfers into discretionary trusts. These are less common and do not affect most people. A CLT is a gift made during an individual’s lifetime which is immediately chargeable to IHT subject to any reliefs and allowances that may be available.

So, if you have cash or assets you want to pass to the next generation that would qualify as a PET, make the gift sooner rather than later and set the 7 year clock running while there is still time.

But, watch out for CGT on the gift. If you are gifting a business asset you may be able to hold over the tax. Otherwise, you may find yourself with CGT payable imminently.