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Lifetime gifting has long been a central tool in succession and estate planning, especially for farms, family businesses and high-value assets. But recent rule changes and case law mean that the stakes are now higher than ever, particularly when a donor tries to retain any benefit from what they have gifted. The decision in the Chugtai case is a timely wake-up call: if the gifting isn’t fully clean and detached, the tax authority may still bring the asset back into the donor’s estate.
What’s Changed and Why Succession Planning Is Under Pressure
Following the UK Budget of 30 October 2024, there is mounting pressure on lifetime gifting. One of the key triggers: reliefs such as Agricultural Property Relief (APR) and Business Property Relief (BPR) are set to be reduced from April 2026. In practice, this means that transferring a farm or passing down a touch business to the next generation will require more careful tax structuring.
At the same time, the recent tribunal decision in the Chugtai case demonstrates how gifts with reservation of benefit (GROB) rules can undermine your plans if the donor retains enjoyment, use, or benefit from the asset. It’s not enough to sign a deed and survive for seven years; the donor must genuinely relinquish the gift’s benefit.
Gifts With Reservation of Benefit (GROB) – Why They Matter
The GROB rules stem from section 102 of the Finance Act 1986. Under these rules:
- When you give away an asset, you may be free of Inheritance Tax (IHT) if you survive seven years after the gift.
- However, if you continue to use, occupy, or enjoy the asset (or derive income from it) after you’ve gifted it, the rule treats it as still belonging to you.
- That means the value may still form part of your taxable estate when you die.
In the Chugtai case, the tribunal held that although the donor had transferred his property and a bank account into trusts more than seven years before his death, because he returned to live in the property, used the adjacent shop to generate income and made payments out of the trust bank account for personal use, the assets were still deemed to be reserved benefits and pulled back into his estate.
Key takeaway: If you gift something, you must relinquish all rights, including usage and derived income, to achieve full IHT relief.
Why the Chugtai Decision Is a Crucial Reminder
Here are the main lessons from the case:
- The donor signed the trust deeds in 2000 (well before death in 2017) but continued to benefit from the property and bank account until his death.
- The tribunal found that occupation, use of income, or payments from the trust back to the donor wipe out the ‘gift’ for IHT relief.
- Motive (e.g., returning to care for a child) did not excuse the retained benefit—what mattered was the reality of the benefit, not the donor’s reason.
- Even where the donor was excluded “on paper” from the trust, the real-world situation governed the outcome.
- The decision underscores that trust deeds and documentation alone are not sufficient—actual behaviour must align with the intended structure.
Especially for those planning generational transfers of land, farms, family businesses, or significant gifts, this case signals that HMRC is scrutinising the details and will test whether the donor genuinely surrendered the benefit.
What You Should Consider Now
- Review any existing lifetime gifts or trust transfers to ensure that you have genuinely surrendered the enjoyment and benefit of the gifted asset.
- If you continue to use a gifted asset (property, land, business), consider paying full market rent, entering formal lease arrangements or stepping back entirely.
- Document rental payments, usage arrangements, trustees’ decisions, beneficiaries’ enjoyment of asset—robust evidence matters.
- If reliefs such as APR or BPR are relevant (for farms or business property), ensure the timing and structure align with the forthcoming reductions from April 2026.
- Seek professional advice if there is uncertainty about whether a gift might fall foul of the GROB rules.
The intersection of lifetime gifting, reduced reliefs, and GROB rules has made estate planning complex. The Chugtai case shows how long-term planning can fail if the donor continues to benefit. For those looking to transfer wealth or property soon, it’s crucial to act intentionally and align your structure with documentation and real-world facts.
At Tax Accountant, we help clients navigate lifetime gifts, trusts, and succession plans to withstand HMRC scrutiny. If you’re considering gifting or incorporating your business or farm, let’s ensure your plan is effective and well-executed.