What is a potentially exempt transfer?
A potentially exempt transfer is a lifetime gift to another individual, or to a bare or disabled person's trust, that becomes completely free of inheritance tax if the giver survives seven years. Die within that period and the gift is brought back into the estate calculation.
There is no upper limit on a PET. The constraint is time, not size. Gifts into most other trusts are not PETs at all — they are chargeable lifetime transfers, taxed at 20% on entry above the nil rate band.
Failed PETs are set against the nil rate band in date order, oldest first. That means an early gift can absorb the band and push later gifts, or the estate itself, into charge — an effect that surprises families who assumed the most recent gift would be the one taxed.
The real difficulty is evidential. Executors must report gifts made in the seven years before death on form IHT403, and they can only report what they can discover. A simple contemporaneous gift log — date, amount, recipient, source — is worth more than any amount of retrospective reconstruction.