I11.714 Discounted gift schemes and the scope of reservation of benefit
IHT is charged when an individual makes a transfer of assets – either whilst the individual is alive or on death. A number of exemptions and reliefs can reduce that charge, in some cases to nil. Assets that are transferred to another individual outright, or to certain favoured trusts, are exempt from IHT provided the donor survives for seven years, so reducing the IHT exposure on death. Where, however, an individual gives assets away, but continues to use or enjoy the assets or otherwise benefit from them, the assets are treated as if they were still owned by the donor and are subject to IHT on death under the reservation of benefit provisions. These provisions were introduced in 1986 and (subject to certain statutory let outs) generally prevent the taxpayer from enjoying property after he has given it away. The aim is to stop what are termed 'have your cake and eat it' arrangements.
The settlor makes a gift into settlement but retains certain rights in the insurance bond. Typically the rights retained may be in a series of single premium policies maturing on successive anniversaries of the creation of the settlement or to future capital payments if the settlor is alive at the prospective payment date.
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