Capital Distributions & Gifts With Reservation

Trusts Discussion
1

Husband and wife have each established discretionary settlements in which the spouse is a potential beneficiary.

The proposal is that capital distributions from each trust will be made to the beneficiary spouse. Those funds will then be used to repay a joint mortgage.

Would this be classed as a gift with reservation as per Example 2 of https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14393 ?

Andrew Magilton
TFO Tax LLP

2

I would say this is certainly a possibility, as they are both potentially liable for the full mortgage debt as between themselves and the mortgage company. Perhaps they could arrange for the mortgage to be released, the house transferred to one of them with
a mortgage in their sole name, and then an advance to pay it all off from just the one trust.

Simon Northcott