What is the order of gifting for inheritance tax purposes?

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What is the order of gifting for inheritance tax purposes?

I made a potentially exempt transfer (PET) four years ago above the nil rate band (NRB). I am now considering establishing a trust. I am already aware I can use the full nil rate band when calculating if any lifetime inheritance tax (IHT) is due, as I only need to look at chargeable transfers made in the last seven years, and PETs aren’t chargeable transfers. However, what will be the position if I die within the next three years? Would the NRB on death be used first against the PETs (but with taper relief due on the amount of tax charged) meaning none would be available against the chargeable lifetime transfer (CLT) so IHT at 40% would be due on the whole amount transferred to trust? I have read that the seven-year clock is effectively reset on PETs within the last seven years when a CLT is made - does this mean I have to survive seven years from the date of the CLT for no IHT to be due on them? 
 
Arthur Weller replies:  
If you die within three years (i.e. within seven years of the date of the PET), the nil rate band (NRB) is used first against the PET, meaning none would be available against the CLT, so IHT at 40% would be due on the whole amount transferred into trust, as you have written. I do not know what you mean when you write that 'that the seven-year clock is effectively reset on PETs within the last seven years when a CLT is made', so that you 'have to survive seven years from the date of the CLT for no IHT to be due on them'. You can see from HMRC’s Inheritance Tax manual at IHTM14513 and IHTM14514 that it is not as you have written. 

I made a potentially exempt transfer (PET) four years ago above the nil rate band (NRB). I am now considering establishing a trust. I am already aware I can use the full nil rate band when calculating if any lifetime inheritance tax (IHT) is,

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This question was first printed in Tax Insider in January 2020.