Introduction to this document

Failed potentially exempt transfer - fall in value claim

Gifts between individuals are potentially exempt transfers (PETs) for IHT purposes. This means that there’s no IHT to pay at the time, but if you die within seven years the full value of the gift becomes chargeable. This is known as a failed PET. Where IHT becomes payable as a result of a failed PET it is usually the recipient of the gift who is liable to pay the tax.


Julie’s aunt gave her £100,000 worth of shares in May 2016, having made gifts to her other nieces in the previous two years which added up to more than the IHT nil rate band. The aunt died in June 2021. Her whole estate, worth £900,000, is left to her daughter. By 2021 the shares given to Julie have devalued and are only worth £60,000.  Julie pays the IHT on the failed PET based on the value of the original gift, i.e. £100,000. The IHT payable is therefore £40,000 (£100,000 x 40%). That leaves Julie with just £20,000 from her aunt’s gift.

Julie can make a special claim meaning that the value of the assets at the time of her aunt’s death will be used for calculating the IHT on the failed PET instead of the original value.

When can you make a claim?

You have four years from the date the person who made the gift dies in which to send a claim to HMRC.

An election can also be made if a PET fails and you sold the gifted assets before the death of the donor for less than the value at the date you received the gift.