A firm of solicitors (area level) has proposed to a H & W client that they are able to transfer as a PET their let property in NRB tranches, into a discretionary trust for the benefit of the adult children to save IHT once the seven years are up (so far so good).
As part of this they are proposing that by retaining ownership of 10% of each property personally the H & W clients can retain all income from the let property, despite having gifted 90% into the trust.
Can I ask if anybody can shed light, or has any experience any on mechanics of how this may be set up, so that it is effective for IHT purposes and not a GWRB ?
I have of course already advised the client that they should obtain a lot more information before considering this scheme.
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It's clearly not a PET is it.
Transfer of income streams anti-avoidance should not be relevant as income is being retained rather than transferred.
Provided they are excluded from the trust*, GWR should not apply under s 102B(2),(3)(a) FA 1986 I think.
The POA rules don’t apply to gifts of real property that the donor doesn’t occupy (paragraph 3(1)(a), Schedule 15, FA 2004).
*Although see Emma Chamberlain and Chris Whitehouse, Trust Taxation and Estate Planning (Sweet & Maxwell, 4th ed, 2017), Chapter 53: IHT Planning Opportunities for the UK Domiciliary: Section VI: Co-Ownership Arrangements for LET Property: paragraph 53.64 gives an example and says the gifted share could be settled into a trust under which the donors retain a life interest without falling foul of GWR as s102B(3) protects the donor from any reservation of benefit while the trust holds let property.
Thank you Justin
I will take a look at your references with interest.
Would there be a reason for the donor(s) to retain a % - that requirement led me to think partnership.
If the donor does not retain an interest, how can there be an undivided share in the property (under a TiC) as required in s102B(1) for the s 102B(2),(3)(a) FA 1986 GWR exclusion?
In addition to Justin's references, you will want to be aware of how TCGA applies itself. Of particular interest may be s70 and s169B.
To be fair, accountants (without specific training) doing IHT is generally just as bad. Often, worse.
And, to be fair, me trying to do accounts... well, I don't. You've got to know your limitations. (From what I have seen, and this forum bears this out, general practice accountants are among the worst for thinking that they can answer anything. Second only to MDTP.)
As an usual suspect i said wrong not illegal . But my opinion for what its worth and not much I suspect is that to separate an asset from the income stream arising therefrom should be subject to GWR rules whether a trust is involved or not
The nonsense of it is that there are far easier risk free things which the client is already doing, such as putting cash into pensions. The clients only went there to get there wills updated.
The solicitors are not wrong, which is unsurprising as this is fairly basic IHT planning straight out of a tax text book. (It is of course also unsurprising that the usual suspects here think they're wrong.)
Nevertheless, in your EC example the settlor retains an interest in possession. On what other basis could the trustees agree to receive less than they were entitled to?
Eh? How can a donee receive less than they are entitled to (a gift recipient is, by definition, entitled to nothing before completion of the gift)? Is this a bad April fools joke?
Eh? How can a donee receive less than they are entitled to (a gift recipient is, by definition, entitled to nothing before completion of the gift)? Is this a bad April fools joke?
Entitled post gift, obviously.
Like everyone else on this thread, I don't think you understand this simple IHT planning.
The IHT idea is easy enough. It's been discussed many times in here before. As you know. So all I'm claiming to understand now is why in the EC example you cited the settlor had an IIP. Do you have an example from such an authoritative source (you and I would agree, I think, that EC is one of the more authoritative out there) where the settlor retains most of the income without an IIP?