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Background

IHT is charged when an individual makes a transfer of assets – either whilst the individual is alive or on death. See I1.501A. A number of exemptions and reliefs can reduce that charge, in some cases to nil. See I1.517.

Assets that are transferred to another individual outright, or to certain favoured trusts, these are 'potentially exempt transfers' and so are exempt from IHT provided the donor survives for seven years, thereby reducing the IHT exposure on death. See I3.311, I3.318. Where, however, an individual gives assets away, but continues to use or enjoy the assets or otherwise benefit from them, the assets are treated as if they were still owned by the donor and are subject to IHT on death under the reservation of benefit provisions. These provisions were introduced in 1986 and (subject to certain statutory let outs) generally prevent the taxpayer from enjoying property after he has given it away. The aim is to stop what are termed 'have your cake and eat it' arrangements. See I1.5122