In Afsha Chugtai v HMRC [2025] TC09495, the First Tier Tribunal (FTT) found that a transfer of value made over seven years before death could not be excluded from the estate for IHT purposes as the donor had reserved benefit in the assets gifted.
Mohammed Chugtai (MC) died in 2017; his daughter, Afsha Chugtai (AC), was the executor of his estate.
- MC had signed two identical trust deeds in 2000, one regarding funds held in an Abbey National (now known as Santander) account, the second relating to a property.
- Both trusts were described as 'interest in possession' trusts. HMRC believed this to be a misidentification and determined both trusts to be discretionary trusts.
- MC was both settlor and sole trustee of the trusts. The beneficiaries were his children.
- MC was specifically excluded from benefiting from the trusts.
- AC believed the assets held in trust should not have formed part of her father's estate since the trusts were established more than seven years before his death.
- HMRC issued a notice of determination to AC, as executor of the estate, as they believed her father reserved a benefit in the assets.
The IHT legislation allows for Transfers of value made seven years before death to be excluded from an estate for IHT purposes unless a reservation has occurred, in which case, the asset will be included in the estate for IHT purposes. HMRC believed MC had continued to benefit from the assets during his lifetime, and the 'Gift with reservation rule' applied.
There was clear evidence that MC had lived in the house before his death and used the bank account for his personal expenses.
- MC had returned to live in the property to care for one of his children, who had mental health issues. He remained living in the property until his death in 2017.
- The property had an adjacent shop which shared a postcode with the property. MC declared trading income from the shop on his Self Assessment return and used the property's address as his home address.
- A tenancy agreement in respect of the shop at the same address had been entered into in October 2011.
- Following the execution of the tenancy agreement, rent from the shop was paid into the Santander account and declared on MC's tax returns.
- The trusts declared no income.
- The Santander account was an active account showing debits for rates, utilities and charitable aid.
The First Tier Tribunal found:
- MC continued to use both assets in the same manner as he had before the creation of the trusts.
- The enjoyment of the trust was not to the exclusion of MC, and there was ample evidence that benefit had been reserved.
- Even though the occupation of the property was to care for his daughter and was not considered for his 'enjoyment', there was further evidence that he continued to benefit from the adjacent shop as a source of income.
- The Santander account was also treated as his personal bank account, meaning a benefit was retained.
- MC could have paid rent to the trustees for the shop and allowed the trustees to pay the expenses relating to the shop, however, none of this appeared to have been considered.
The appeal was dismissed.
Useful guides on this topic
IHT: Gifts with reservation
What are the Gift With Reservation (GWR) rules? When do they apply?
Client briefing: Making gifts & IHT
What gifts can you make without triggering Inheritance Tax (IHT)? What are the rules on making tax-effective gifts for IHT purposes?
IHT: Transfers of value
What is a transfer of value for Inheritance Tax (IHT) purposes?
UK Trusts
What is a trust? What types of trust are there? How are UK trusts taxed?
Estates: Income Tax and Capital Gains Tax
How do executors deal with income and capital gains arising on the deceased’s estate? What allowances and reliefs are available?
External link