Reversing gifts - PETs which are likely to fail

H gifts a considerable cash sum - over the NRB - to his son B but a year later falls ill with a short life expectancy. He does not have insurance.

Assuming it is a gift, rather than a loan, is there any way to reverse the gift (with B’s agreement) so that the sum can instead be left to H’s widow (B’s mother) as an exempt transfer?

I cannot see any way to achieve this or indeed any other way to avoid the IHT if H dies within the PET period (taper aside).

I would welcome any ideas or even just confirmation that I am not missing anything.

Andrew Goodman
Osborne Clarke LLP

The son could in theory disclaim under common law as a giver cannot force a recipient to accept a gift. However, it would be necessary for the recipient to be able to prove lack of acceptance; in this regard, there is no time limit in which a gift may be disclaimed, Presumably the son was aware of the gift?

Malcolm Finney

If the illness was in fact something that the deceased had been suffering from at the time of making the gift and which, had he known about it, would have made him decide not to make the gift, then the court might rescind the gift:

Ogden v Trustees of the RHS Griffiths 2003 Settlement
[2008] EWHC 118 (Ch), [2009] Ch 162, [2008] 2 All ER 654, [2009] 2 WLR 394

He might have had a condition without any symptoms and only felt “ill” after he had made the gift.

Disclaimer, as Malcolm says, is also a possibility if the donee was not aware of the gift or had received no benefit from it.

Paul Davidoff
New Quadrant

Thank you Malcolm and Paul, both excellent ideas. Unfortunately I suspect disclaimer would be difficult as the son is likely to have signed assorted documents but it’s still worth examining. Rescission might also be a possibility.

It’s an unfortunate state of affairs and one that I have come across in practice more than once. It is another good reason why I strongly encourage clients making PETs to take term insurance for the 7 year period.

Turning to your case, the only saving grace could be checking with H whether it was his intention to make similar levels of gifts over a number of years to attempt to fit in with the exemption at IHTA84 s21 and indeed, intends on continuing the pattern until he’s gone.

Of course, a transfer of value over the NRB that qualifies under s21 suggests an extraordinarily healthy income but it’s worth a try if the circumstances fit.

Otherwise, an application to the Court on Ogden may help but will be expensive.

Please keep us posted on progress!

Thanks also Pinny.

Sadly, despite a nudge, the client is convinced that he would have been perfectly healthy at the time of the gifts (!) - thus seeing off rescission - son has received the gifts and has dealt with them - bye bye disclaimer - and the gifts were far in excess of the client’s income.

The only saving grace is that I had suggested insurance but the client didn’t take it up. It will become a war story for future clients…