Product category:
Tax and National Insurance
News Release from: Standard Life Bank | Subject: IHT
Edited by the Insidemoneytalk Editorial
Team on 25 February 2008
Vote of confidence in IHT aspects of
Discounted Gift Plans welcomed
The long-awaited decision from the Special Commissioners affecting the Axa Discounted Gift Trust has now been announced, in favour of the taxpayers (the executors of the late Mrs Bower).
The issue being considered related to the value of the lifetime gift made by the late Mrs Bower, when she set up a Discounted Gift Plan (DGP) in 2002 Mrs Bower died 5 months after making the gift to the trust
This article was originally published on Insidemoneytalk on 26 Mar 2007 at 8.00am (UK)
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A key issue was the age of the settlor at the point she made the gift to the trust.
HM Revenue and Customs (HMRC) contended that someone aged 90 or over would receive little or no discount since someone of that age would be uninsurable.
The executors of the late Mrs Bower did not agree with that position and argued that a discount could apply.
Commenting on news of the decision, Julie Hutchison, Estate Planning Specialist with UK Financial Services, Standard Life said : "This decision in favour of a life assurer's Discounted Gift Plan can be seen as a boost.
It is a welcome vote of confidence in the general IHT principles behind Discounted Gift Plans, since the decision notes that there was no question of the settlor being treated as having made a gift with reservation of benefit.
I note however that the Special Commissioner did apply a different methodology in arriving at a revised discount, which reduced from £7,800 to £4,200, whereas HMRC had argued for a discount of just £250.
We will be watching carefully for any HMRC appeal and consequent adjustment to the May 2007 Technical Note which HMRC issued setting out its preferred methodology for DGP, which has become the industry standard.
This might have to be revisited and we will be liaising via the ABI to see how this is to be taken forward." A Discounted Gift Plan is designed for people who want to gift money to a trust as part of their estate planning strategy, while allowing fixed regular withdrawals to be paid back to them.
If the person dies in the first seven years of setting up the trust, the amount added back to their estate for IHT purposes may be less than the original cheque they wrote, hence the name 'discount.' The value of the discount depends on the age, health and sex of the customer as well as the level of withdrawals selected.
The younger and healthier the customer, the larger the discount because on the open market their stream of withdrawals would attract a higher price in a sale.
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