The translation from the latin inter vivos means 'between the living'. Gift inter vivos refers to a gift made by a donor to another during lifetime. This is a potentially exempt transfer (PET) under the inheritance tax (IHT) rules. A PET would be exempt from inheritance tax provided that the donor survives for a period of 7 years after the date that the gift is made. Should the donor die within this 7 year period there is still a potential liability to inheritance tax, which in certain instances reduces over the period. This reduction in liability is commonly known as taper relief.
The most common way of protecting the beneficiaries of these gifts from the potential tax liability is to set up a life assurance policy to cover the reducing liability. These are known as ‘gift inter vivos’ policies. These policies have a fixed 7 year term, with cover reducing in steps to match the reduced liability as taper relief takes effect. Although the cover reduces the premium typically remains fixed for the whole 7 years.
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