Potentially Exempt Transfers (PETs)

The 2008 case of Ogden and Others (Executors of the Estate of Ronald Griffiths) v The Trustees of the RHS Griffiths 2003 Settlement  related to an application by the Executors of Mr Griffiths to set aside potentially exempt transfers (PETs) which became chargeable on Griffiths’s death on the basis that the PETs were made under the mistaken belief that there was a real chance he would survive the seven year requirements.   In fact Griffith’s had little chance of surviving for that long. The court was told that if he had been aware of this he would never have made the transfers which should therefore be set aside.

The PETs took place April 2003 and February 2004. In autumn 2004 Griffiths was diagnosed as having cancer. He passed away in April 2005. The medical evidence presented showed that he had cancer in 2004 but not in 2003. Giffith’s will left a life interest in his residuary estate to his wife so that, had the PETs never taken place, there would have been no IHT due to the Revenue.

The court’s decision was that  if a mistake of fact is sufficiently serious, it could be set aside on the ground of mistake. The Executors would need to show that if Griffiths had knowledge of the facts ( the fact that he would soon pass away ) he would not have made the PETs. The court was not provided with evidence that the PETs in 2003 were made under a mistake as he was not ill at the time. By way of contrast, the court was satisfied that had Giffiths been aware in 2004 that he was suffering from lung cancer, he would have appreciated that his chance of surviving seven years was remote the PET would not have been made. The 2004 PET, but not the 2003 one, was therefore voidable on the basis of Mistake and was set aside. In the words of Mr Justice Lewison: “It is unjust for the donees to retain the gift in circumstances which impose upon the donor an unintended liability to a very substantial amount of inheritance tax”.

PETs do have an impact on probate so if you have any questions on this area please speak to a member of our probate team