Trusts Did Not Benefit Family in £442k Inheritance Tax Case
The recent case of Afsha Chugtai vs HMRC has significant implications for Inheritance Tax (IHT) legislation, particularly regarding trusts. The tribunal examined whether funds in two trusts qualified for exemption from IHT, ultimately concluding that they did not benefit the family as intended ... The 'Afsha Chugtai vs HMRC' case serves as an essential teaching moment in the realm of inheritance tax and trust law The complexities surrounding inheritance tax can often feel daunting, especially when cases revolve around the intricate nature of trusts and the stipulations of relevant legislation. A recent tribunal ruling, 'Afsha Chugtai vs HMRC [2025] UKFTT 00458 (TC)', has once again highlighted just how convoluted these matters can become. In this particular case, the late Mohammed Chugtai's estate was scrutinised, leading to a disagreement between HM Revenue and Customs (HMRC) and his daughter and executrix, Afsha Chugtai, over potential inheritance tax liabilities. At the heart of the matter was the interpretation of Section 102 of the Finance Act 1986!This pertains to gifts with a reservation of benefit. While gifts made more than seven years before death are generally exempt from Inheritance Tax, this exemption does not apply if the donor continues to enjoy the property or retains some benefit from it. This legislation was key to HMRC's argument that the trusts, designed to reduce Mr. Chugtai's chargeable estate by £442,239, were invalid due to a retained benefit. In a rather commendable move, the tribunal judges were eager to commend the legal representatives for their clear submissions. The legal battle underscored not just the intricacies of Inheritance Tax, but also the importance of how such cases are presented. For those seeking to challenge HMRC's findings, it highlights the necessity of presenting a robust case - complete with personal testimony and reliable evidence. As it relates to the case, Mr. Chugtai had established two discretionary ‘interest in possession trusts’ in February 2000, aimed at benefiting his children. While the trusts were structured to exclude the deceased from benefiting from their assets, he returned to the Caversham property to care for a child with mental health issues, occupying the property without any evidence of paying rent. In the eyes of HMRC, this was a clear indicator of |
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