I’ve heard of potentially exempt transfers (Pets) as a way of avoiding inheritance tax (IHT). But I don’t really understand how this works.

A “Pet” is the act of giving away cash and assets to another person, or into some types of trust, in the hope of removing the value of these gifts from your estate.

It’s a pressing problem, as IHT is paid at 40 per cent on everything in the estate on top of the nil-rate band (which is free of tax). The current threshold for this is £275,000 (rising to £285,000 for 2006/7 and £300,000 for 2007/8).