- 1. The Scope of the Book: Estate Planning Introduced
- 1.2.3 Other Taxes
- 1.5.14 Tackling tax avoidance: the 22 June 2010 Emergency Budget Proposals
- 1.6.1 ‘Spotlights’ and ‘Signposts’
- 2. Inheritance Tax Mitigation: The Basics
- 3. Making Gifts: Outright or Protected?
- 3.2.3 The pre-owned assets regime
- 3.2.4 Settlor-interested trusts: Income Tax and CGT
- 3.6.3 Formation
- 4. Trusts: Tax-Efficient Management
- 4.4.3 Capital Gains Tax
- 4.7.6 Related settlements
- 4.9.3 Power to accumulate or a discretion over income
- 5. The Family Home(s)
- 6. The Family Business
- 6.1.3 Capital Gains Tax angles
- 6.1.4 Other taxes
- 6.2.7 The period of ownership
- 6.3.1 The announcement of 24 January 2007 - and increasing thresholds
- 6.3.2 The detail of the legislation
- 6.6.2 Partnerships
- 9. Investments
- 10. Life Assurance
- 11. Pensions
- 11.1.2 Pensions not to be used for IHT mitigation
- 11.5.1 Overview
- 11.5.5 Death benefits
- 11.5.6 Age 75: ASP or annuity purchase?
- 12. Charitable Giving
- 12.2 Charities: The ‘fit and proper persons’ test in FA 2010
- 12.2.3 Tax advantages for donors summarised
- 12.2.3.1 Gift aid carry back: time limit for claim
- 13. The Family Unit
- 15. Leaving the UK
- 15.3.7 Gifts from UK to non-UK domiciliaries and reservation of benefit
- 15.3.8 Domicile: prospective government review
- 15.5.7 Differing status for different members of the family
- 16. Non-UK Domiciliaries Living in the UK
- 16.1.5 Further review of non-doms promised on 22 June 2010
- 16.3.2 Compliance
- 16.4.4 IHT and double taxation: the pre-capital transfer tax treaties and Switzerland
- 16.6.1 The statutory rule
- 16.6.2.1 Excluded property settlements and the UK private residence
- 17. Offshore Trusts and Companies
- 17.5.2 The capital payments charge in more detail
- 17.7.4 The transfer of assets abroad regime: non-UK resident childrens trusts
- 18. Wills
- 18.4.3 The transferable nil-rate band
- 18.5.5 Different structures: the balance of advantage
- 18.6.1 The issues, subject to the transferable nil-rate band
- 18.6.2 Statement of Practice SP 10/79
- 19. Post-death Planning
- 20. Compliance
Chapter: 2 - Inheritance Tax Mitigation: The Basics
An effective gift of the chattel followed by continued enjoyment by the donor ‘for full consideration’
2.6.3
So long as ‘full consideration’ is paid (whatever that may mean) there is specific exemption from both the GWR regime (FA 1986 Sch 20 para 6(1)(a)) and the POA regime (FA 2004 Sch 15 para 11(5)(d)). It has been customary over recent years for prospective donor and donee, eg mother and son, to have a gift of chattels by mother to son to be accompanied by a licence or lease arrangement under which typically mother covenants to pay the insurance premium on behalf of son and on that basis to pay such an annual fee independently agreed between qualified agents acting for each party as will constitute full consideration. In the present marketplace this may amount to no more than 1% of market value, to be kept under review every three years. This of course, on which the donee must pay Income Tax, compares rather favourably with the annual amount on which the Income Tax liability is based under the POA regime, assuming no GWR (4.75% for 2009/10, reduced from 6.25% for 2008/09). As noted at 2.6.2, the CGT implications of the gift must be considered.
While such arrangements were being vigorously challenged by HMRC Inheritance Tax some years ago, that threat appears now to have receded. On the other hand, anyone entering into such an arrangement needs to be warned that it is not exactly for ‘widows and orphans’ and so, while taking the best advice and complying with it, nothing can be guaranteed. But of course once seven years have passed after the gift and the PET has become exempt (and full consideration continues to be paid for the rest of the donor’s life or until she ceases to enjoy the assets), the chattels concerned will effectively have been extracted from the chargeable estate free of IHT while enabling continuing enjoyment, at only a relatively small annual cost.


