Gift With Reservation of Benefit

tax implicationsFigures from HMRC indicate that in the last two tax years £261 million of gifted assets came back into the IHT net because of a gift with reservation of benefit.

The above statistic is from Freedom of Information requests made by the Daily Telegraph and published in an article in November last year.  The article doesn’t provide full details about the gifts, but the chances are, many of the 840 estates affected involved a gift of a family home with continued occupation by the donor.

In an article from Technical Connections, they highlight an increasing number of questions related to trusts of properties where the settlor either remains one of the discretionary beneficiaries, or is a life tenant.  In some cases problems arise where such trusts were set up by companies promoting the so-called “asset preservation trusts” and where third party trustees appointed by such companies have since disappeared.

Whilst there may, in some cases, be good practical reasons for transferring a family home into a trust, in reality, most arrangements would have been set up with a view to avoiding paying care home fees.  This would generally be the case where clients “bought” the so-called “asset protection trust” off the shelf from a marketing company.  Over the years some promoters have marketed a number of such schemes and have clearly overstepped the mark of legality.  In 2015 a number of people were jailed in Nottingham Crown Court for mis-selling the so-called “asset protection trust” to elderly clients, and in the most recent scandal involving Universal Wealth Preservation and its associated companies the owner of the business was jailed for 8 months.

Unfortunately many of the schemes set up as “asset preservation trusts” have also falsely claimed that they provided protection from inheritance tax.  The above statistic on gifts with reservation highlight the point that a gift with reservation of benefit will not help avoid inheritance tax.

Please call Mike Colin or Chris if this is something that you, or a friend, want to discuss further.