IHTM42254 - The settlor: Gifts with Reservation

For a definition of a Gift with Reservation (GWR) on discretionary trusts and details of tracing settled assets, see the lifetime transfers chapter of this manual, from IHTM14393

In the simplest terms, if a settlor transfers property to a discretionary trust of which they are a member of a class of potential beneficiaries, the settlor has reserved a benefit. This applies despite the argument that, in the nature of a discretionary trust, the trustees might never give the settlor any benefit.

The result for the settlor

  • When the original transfer is made, it is immediately chargeable. (IHTM42251)

The reservation of benefit will then have one of two effects

  • The reservation may be released in the settlor바카라 사이트™s lifetime, in which case it is a deemed potentially exempt transfer (PET) at the time it is released, (IHTM04072), or
  • The property may still be subject to the reservation at the settlor바카라 사이트™s death and be fully chargeable as part of the death estate.

The result for the trust

Whether there is a GWR claim or not, the normal discretionary trust charges are unaffected. Ten-year anniversary (TYA) and proportionate charges continue to apply.   

  • The GWR double charges relief applies only to charges on the settlor as an individual and do not affect tax on TYA or proportionate charges.  (IHTM14711)

  • The existence of a claim on death at a (probably) higher value is not brought into account with the discretionary trust for any later proportionate charges. The rate remains based on the original 바카라 사이트˜historic바카라 사이트™ value at set-up or the last TYA. 

However, any Inheritance Tax due from the trust because of death or a failed PET will be a liability of the trustees.Â