The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
This guidance note considers some IHT planning schemes which were popular in the 1990s and early 2000s as a means of removing the value of the home from the taxpayer’s estate. The aim was to allow the property owner to remain living in the home without getting caught by the gift with reservation (GWR) provisions. They are now largely unworkable or unnecessary as a result of subsequent legislation.
See the Gifts with reservation ― overview guidance note.
Although the schemes are no longer recommended, tax practitioners will still encounter arrangements which were set up years ago. The guidance notes on historical schemes provide some background information on how the schemes worked and what their current status is.
See also the Historical schemes: Ingram and reversionary lease schemes guidance note.
These schemes involved the transfer of a property from one spouse to a life interest trust to the other, the terms of which provided that the first spouse was also a discretionary beneficiary on the death of the second spouse. They took advantage of:
the general spouse exemption
the fact that a lifetime gift into trust could (before 22 March 2006) create an interest in possession by which the holder of that interest was deemed to own the underlying capital, and
the specific exemption from the GWR provisions which applied to transfers between spouses
IHTA 1984, ss 18, 49; FA 1986, s 102(5)(a)
In Eversden, a married woman transferred a 95% interest in a house to a trust with an initial life interest to her husband, after his death, by discretionary trusts for herself, the settlor, and her children. Her husband died in 1992 and on the settlor’s subsequent death in 1998 HMRC contended that the original gift into trust by her was a GWR. The Court of Appeal rejected HMRC’s argument and said that if the result was of concern to HMRC “they must look for correction to Parliament, not the Courts”. The case confirmed the principle that, under
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