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HMRC internal manual

Inheritance Tax Manual

Life Policies: Technical note on discounted gift schemes issued on 1 May 2007: Inheritance Tax treatment of discounted gift schemes.

Essentially a discounted gift scheme involves a gift of a bond from which a set of rights are retained, typically withdrawals or a set of successively maturing reversions. The retained rights are sufficiently well defined to prevent the gift being regarded as a gift with reservation (GWR) for Inheritance Tax (IHT) purposes.

The gift is a transfer of value for IHT purposes. The value of the gift is determined by the loss to the estate principle set out in IHTA84/S3(1), and quantified by:

  • the difference between the amount invested by the settlor and
  • the open market value of the retained rights (IHTA84/S160).