Totally reserved

We have been asked to act on behalf of a discretionary trust that was established in 2002 when money was gifted to it with the intention that this should be a potentially exempt transfer (PET).

In 2006 the trustees used this money to purchase an interest of 20% in a property from a third party. The settlor purchased the other 80% interest and used the property as his main residence until it was recently sold.

According to the trustees the purchase of a proportionate property interest was chosen in preference to a simple loan back from the trust with a view to mitigating or setting aside a potential claim by HMRC that a reservation of benefit had occurred here.

We think that despite this preference there is no doubt that a benefit has accrued to the settlor and that the PET treatment of the original...