The Disclosure of Tax Avoidance Schemes (DOTAS) regulations introduced in April 2018 creates uncertainty on whether the use of discounted gift and loan trusts should be notified to HMRC.
Discount gift trusts (DGT or DGP) are trust-based inheritance tax planning arrangements using savings. DGT are made by a series of single premium investments, which involves the creation of a bare or discretionary trust, by way of gift, with certain rights being retained by the donor. Provided the settlor/donor is in reasonable health, a calculation is made as to the likely total amount of income that will be paid back to them by the trustees (known as the discount retained by the settlor). The remainder will be treated as a lifetime chargeable transfer in the case of a discretionary trust, or a potentially exempt transfer for a bare trust. DGTs do not trigger the reservation of benefit provisions, and the effect of the arrangement means there is an immediate IHT reduction upon creation of a discounted gift trust, without needing to survive the usual 7 years.
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