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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Life Policies: Pure Endowment policy linked with a Term Assurance policy: Discounted Gift Schemes: basic scheme

Although there are some variations between the precise workings of different Discounted Gift Schemes, the basic scheme works as follows.

Discounted Gift Schemes are single premium investments. They essentially comprise a gift, which may be in the form of a bare trust or a settlement, with certain rights being retained by the donor. The retained rights are usually one of two types, either:

  • the right to receive future capital payments if the settlor is alive at each prospective payment date - typically these payments might be 5% per year of the initial investment payable monthly, quarterly or annually, or
  • a series of single premium policies maturing (usually) on successive anniversaries of the initial investment or on survival, payable to the settlor, if they are alive on the maturity date.

Provided that the rights retained by the donor/settlor are sufficiently clearly defined, the donor will not be benefiting from the property gifted and the gift with reservation provisions of FA86/S102 (IHTM14301) will not be in point