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HMRC loses dispute on discounted gift trusts

The Special Commissioner has ruled against HM Revenue & Customs in a case which considered whether people aged over 90 can benefit from a discounted gift trust plan.

The case was decided in favour of the executors of an elderly woman who died five months after setting up a discounted gift trust plan withAxa in 2002.

Under consideration was the value of the lifetime gift made by the late Mrs Bower, who was aged over 90.

HMRC had argued that the deceased should receive little or no discount as someone of that age would be uninsurable. The executors of the trust contended that the discount should apply.

Standard Life estate planning specialist Julie Hutchison says: “This decision in favour of a life insurer’s discounted gift trust plan can be seen as a boost. It is a welcome vote of confidence in the general inheritance tax principles behind discounted gift trust 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 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 discounted gift trust plans, which has become the industry standard.”

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