Standard Life has welcomed a decision from the Special Commissioner to execute a discount on a Discounted Gift Trust (DGP) set up by a woman who died five months after making a gift.
Julie Hutchison, estate planning specialist at Standard Life, describes the verdict as a “welcome vote of confidence in the general IHT principles behind DGPs”.
The decision related to the value of the lifetime gift made by a Mrs Bower after she set up a DGP with AXA in 2002. She died five months after making the gift to the trust.
A key issue was the age of the settlor at the point she made the gift to the trust. HM Revenue & Customs (HMRC) contended someone aged 90 or over would receive little or no discount as anybody of that age would be uninsurable.
But the executors of the late Mrs Bower did not agree with that position and argued a discount should apply.
“This decision in favour of a life assurer’s Discounted Gift Plan can be seen as a boost,” Hutchison says.
“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.”
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