HMRC has agreed an analysis of when the inheritance tax spouse exemption is available for assets held in a trust which are treated as beneficially owned by the settlor as a result of the reservation of benefit rules.
The interaction of the spouse exemption and gift with reservation inheritance tax (IHT) rules has been a subject of debate, with some arguing that the spouse exemption is not available where the gift with reservation rules apply.
This has come into focus because of the excluded property changes in Finance Act (FA) 2020. The impact of the FA 2020 changes appears to be to remove the protection that excluded property treatment provided for gift with reservation purposes in certain cases where the trust was established prior to the FA 2020 changes.