When Keir Starmer gave a field to his parents, he used a “life interest trust”. This meant that, as its value grew from £20k to £300k, it was outside his parents’ inheritance tax estate.
UPDATE: 10am Sunday 28 September. Mr Starmer just told Laura Kuenssberg that he didn’t create a trust. That is hard to understand when The Sunday Times has been asking Mr Starmer about a trust for a month, and he at no point denied there was a trust. It also makes it hard to explain the form of words Mr Starmer used in his letter to the Parliamentary Commissioner: “I immediately gifted the land to my parents for so long as they should live”. To a lawyer, that means a trust.
In 1996, Keir Starmer bought a seven-acre field behind his parents’ house so they could keep rescue donkeys. But the arrangement wasn’t quite as simple as a gift. The wording he later used suggests he created a life-interest trust: his parents could use the field for the rest of their lives, but ownership would revert to him when they died. That structure had the effect of keeping the field outside his parents’ estate for inheritance tax purposes. As things turned out, it likely made no difference, as their estate was probably below the threshold. But was the trust an accidental curiosity? Or a piece of careful tax planning – some would say tax avoidance – that ultimately turned out to be unnecessary?
This is a story I’ve been working on with the Sunday Times. They’ve published their story today – this article gives the technical background, and my view of what it means.
The facts
The history is as follows:
- In 1996, Keir Starmer bought a seven acre field adjacent to his parents’ house and garden (long before he became an MP). The price was £20,000. There were donkeys on the field – the purpose of the purchase was so his parents could look after rescue donkeys.
- Mr Starmer became an MP in 2015. MPs are required to register land/property in the Register of Members Interests if it’s worth £100,000 or more. Mr Starmer didn’t register the field.
- Mr Starmer’s mother died in 2015; his father died on 1 December 2018. The net value of their estate (mainly their house) was £374,091. Mr Starmer was an executor of their estates.
- In 2020, the Daily Mail reported that the field could be worth £10m.
- In January 2022, Mr Starmer had the field valued – it was worth more than £100,000 (but nowhere near £10m).
- That means Mr Starmer should have declared the field in the Register of Members Interests at some point. Soon after Mr Starmer obtained the valuation, his office contacted the Parliamentary Commission for Standards to correct his entry in the register.
- In May 2022, Mr Starmer agreed the sale of the field, together with a strip of land previously owned by Mr Starmer’s father. Mr Starmer’s share of the proceeds was around £295,000.1The total price was £400,000, of which about £295,000 related to the field – we know this from the tax summary Mr Starmer published for 2022.
- In June 2022 there was an investigation by the Parliamentary Commissioner for Standards into Mr Starmer’s failure to register the field, which ended in Mr Starmer apologising and the register being retrospectively amended.
The life interest trust
I discussed the sale of the field with the Sunday Times earlier this year. I noticed a phrase Mr Starmer used in his correspondence with the Parliamentary Commissioner for Standards:
Most lawyers will read “for so long as they should live” as meaning Mr Starmer created a life interest trust. That was my immediate view, and the Sunday Times instructed a KC who agrees.
Mr Starmer has neither confirmed nor denied that he created a trust – but it seems a fair assumption that he did (or surely the story would have been denied).
Mr Starmer’s office says that, after the Sunday Times started asking questions about the arrangements, Keir Starmer engaged a leading tax KC to advise, and that all tax was fully paid.
How a life interest trust works
If we’re right that Mr Starmer created a life interest trust2This is sometimes called a “reverter‑to‑settlor” trust, because the property reverts to the person who created the trust – the “settlor”. A life interest trust is also sometimes referred to as an “interest in possession” trust, although there are interest in possession trusts that are not life interest trusts., then it worked like this:
- Mr Starmer was listed on the land registry as owning the field.
- His parents were beneficiaries of the land during their lifetime. They could use it as they wished, and receive any income from the land. But they could not dispose of it.
- When his parents died, the trust ended and the land became wholly owned (legally and beneficially) by Mr Starmer.
I suspect a non-lawyer in Mr Starmer’s position wouldn’t think to do this. They would either own the land themselves (but let their parents use it) or give it to their parents outright.
Why not just let his parents use it? We don’t know, but we can speculate that they wanted his parents to “really” own the field, rather than just being permitted to use it. That is sometimes important to people.
Why not a gift, and then inherit the land when his parents died? There are at least two possible reasons:
- Parents often wish their children to share property equally, and their Wills reflect that. Mr Starmer might expect to receive the field himself; that would require changing his parents’ Wills.
- If he gave the field to his parents outright, it would have formed part of their estate for inheritance tax purposes. But property in a life interest trust that reverts to the settlor does not, because of section 54(1) of the Inheritance Tax Act 1984.
So in a way the trust gives the best of both worlds: his parents owned the property when they were alive, but with no need to change their Will, and no need for probate when they die. And it potentially avoids inheritance tax.3A loan would have had the same tax effect – i.e. Mr Starmer loans his parents the funds and they purchase the field. But that requires them to sign documents and complicates probate – it’s a less attractive option. A lease (with peppercorn rent) would have been another approach, but if the term was over seven years then it would have to be registered at the Land Registry.
(However this is a very complex area, with laws that frequently change. Please don’t take anything in this article as advice.)
Did Mr Starmer actually avoid inheritance tax?
This is certainly not a case where Mr Starmer failed to pay tax that was legally due. But did the trust reduce the Starmer family’s inheritance tax bill?
Mr Starmer’s office told the Sunday Times that “Given the size of the estate, the inclusion or not of the field in their estate made no difference to the estate’s IHT liabilities.”
How plausible is that?
If there had been no trust, and the field had been included in his parents’ estate (at its sale value), then the net value of the estate would have been about £670,000. That’s significantly less than the £875,000 combined exempt amount from both parents’ £325k nil rate band plus his £125k residence nil rate band and her £100k residence nil rate band.4The residence nil rate band was created in 2017 but could be transferred from a spouse who had died before then.
In this scenario there was no tax to avoid – his parents’ estate was worth considerably less than the IHT threshold, and nothing he could have done with the field would have changed that.
However those numbers assume that Mr Starmer’s mother used none of her nil rate band or residence nil rate band, leaving his father with a £875,000 combined exempt amount. That’s a reasonable assumption, because most married couples hold their home as joint tenants (so it’s inherited automatically and not under the Will) and Will almost all (or all) of their other property to their surviving spouse.5i.e. in this, very common, scenario the first spouse uses none of their residence nil rate band and little or none of their nil rate band. However if that assumption is significantly wrong – for example because Mr Starmer’s mother gave gifts6In her Will or in the seven years before she died. of more than £205k to someone other than her husband, then Mr Starmer’s father’s estate would probably have had an inheritance liability if the field hadn’t been held on a lifetime trust.
I’d therefore conclude that it’s possible that the trust reduced the inheritance tax bill, but Mr Starmer has said it didn’t, and the facts are consistent with that.
Did Mr Starmer try to avoid inheritance tax?
The short answer is that we don’t know.
The residence nil rate band didn’t exist in 1996 and Mr Starmer could have rationally expected rising property values or even the development potential of the field to result in his parents’ estate being subject to inheritance tax. He might have decided that a trust was therefore better tax planning than giving his parents the field. Whether we call that tax avoidance is a political/ethical question, not a legal question (but, either way, it wasn’t something HMRC would be able to challenge).
Or it could just have been an experienced lawyer’s way of giving the field to his parents whilst they were alive, with tax not entering into Mr Starmer’s calculation.
Mr Starmer hasn’t been willing to explain why he created the trust. All his team would say to the Sunday Times is:
“Keir Starmer’s decision to allow his parents to use a field he bought them for £20k in the late stages of their lives had nothing to do with any tax considerations. He simply wanted to help his parents keep donkeys.”
That doesn’t really answer the question. Nobody’s suggesting he let his parents use a field for tax reasons. The question is whether he created a trust for tax reasons.
My personal view is that, if he did, this wasn’t tax avoidance – because the tax outcome he achieved was the same as if he’d owned the field himself but let his parents use it. That contrasts with some uses of trusts to (supposedly) magically eliminate tax liabilities – they are definitely tax avoidance, and usually don’t work (and may even constitute tax evasion).
However there is no single legal definition of “tax avoidance”, and others may disagree. I’ve written about the difficulty of defining “tax avoidance”.
Some disclosure: I’m a member of the Labour Party; I was previously a member of its senior disciplinary body (the National Constitutional Committee) but have stood down. I have no formal role in the Labour Party, and I advise policymakers in all parties. Generally that’s on “background”/unofficial: my one official role is that I’m a member of the SNP Scottish Government’s tax advisory group. I also participate in Government consultations, and speak to officials and occasionally politicians as part of those consultations (and have done so for many years, under previous Governments).
Many thanks to Gabriel Pogrund and the Sunday Times. Thanks to S for her expertise in trust taxation.
- 1The total price was £400,000, of which about £295,000 related to the field – we know this from the tax summary Mr Starmer published for 2022.
- 2This is sometimes called a “reverter‑to‑settlor” trust, because the property reverts to the person who created the trust – the “settlor”. A life interest trust is also sometimes referred to as an “interest in possession” trust, although there are interest in possession trusts that are not life interest trusts.
- 3A loan would have had the same tax effect – i.e. Mr Starmer loans his parents the funds and they purchase the field. But that requires them to sign documents and complicates probate – it’s a less attractive option. A lease (with peppercorn rent) would have been another approach, but if the term was over seven years then it would have to be registered at the Land Registry.
- 4The residence nil rate band was created in 2017 but could be transferred from a spouse who had died before then.
- 5i.e. in this, very common, scenario the first spouse uses none of their residence nil rate band and little or none of their nil rate band.
- 6In her Will or in the seven years before she died.
42 responses to “Did Keir Starmer use a trust to avoid inheritance tax?”
“”Starmer has condemned legal tax avoidance. When running for the Labour leadership, he said: “We need to clamp down on tax avoidance — by companies and individuals — which costs the taxpayer billions.” In opposition, he said: “I think it’s pretty simple: those in charge of taxation can’t also be seeking to avoid it.”” runs the FT.
I’m with the majority here about the value of this. But I don’t think that is what Dan is saying (The ST will have a different less subtle slant). He did not choose his words carefully in opposition, making the distinction between legal and illegal. His wording in the Kusenberg interview, as ever, is opaque. Working class people now use life interest trusts to deal with care costs arising from the value of a Right To Buy council house, if it is in the right place.
I asked for 500g of Patriotic Renewal and they suggested I go to the toilet cleaner isle. I was followed.
Like Angela Three Pads, its grandstanding in opposition, FUD and denial in office. They’re done but the alternative is so much worse.
If that IS the point you are making, Dan, The ST will be doing some heavy lifting with your words.
If the purpose of inheritance tax is to defray the generation by generation accumulation of wealth by some families, then it shouldn’t apply to resources earned by a child and used to support their parents.
If the purpose is more broadly to tax any accumulated wealth at a convenient moment, then maybe Kier’s original intention was to avoid that, even if he ended up worse off by making a larger personal capital gain.
That life trusts are legal and not part of an estate inclines towards the former interpretation.
All that’s left is a failure to declare an interest at a time when it was quite minor.
I’m surprised by your involvement in giving credence to a non-story. Back in the day when I was often approached by journalists with tax ‘stories’ I spiked more than I endorsed by explaining the reality and (often) the commonplace nature of the transactions.
Here we have a man who twenty years ago wanted to help his parents look after donkeys. So he bought some land behind their home.
Of course he didn’t give them the money to buy the land or give them the land after acquiring it himself. All conventional wisdom has long involved NOT gifting money aged parents as that could CREATE an unnecessary IHT liability.
It takes a lot for me to disagree with you Dan. What am I missing here?
As someone who cannot find anything good to say about Starmer’s performance as PM this seems to me the same kind of tax planning that I would advocate to any client.
Presumably the trust was set up before 22 March 2006. After that date a relevant property trust would have been created and no reverter to settlor exemption.
Where that exemption applies the trust fund is excluded from the life tenant’s estate. Joint life interests are potentially problematic. On the first death half of the fund is chargeable unless at that point that half reverts to the settlor but, if not, a successive life interest in the whole fund will attract a separate exemption for a spouse transfer.
Betteridge’s Law applies.
Why did he not simply retain ownership of the land and say to his parents “you can keep the donkeys on it as long as you wish?”
He could have set this out in a (non binding) letter if he wanted to make it more formal and share with family members. Or is it a natural response for a lawyer?
Is it not possible that this is what Starmer did? There doesn’t seem to be any evidence that he created a trust or otherwise transferred ownership to his parents.
To be honest it seems reasonable to do. He ‘gave’ them the field on the basis he got it back, rather than a 1/4 share or whatever from his parents estate.
It doesn’t strike me as a particularly malicious piece of avoidance to be fair .
A decent investment from KS, surely the world’s pensions savings should be reallocated.
I see the point of those advocating no inheritance tax if it means fewer tax advisers and they can go off and fill vacancies for maths teaching.
If Keir Starmer had been “trying” to avoid tax he should have given the land to his parents outright rather than as an interest in possession. Since he hadn’t died before 2003 (seven years) the value wouldn’t form part of his estate when he does pass away. And apparently his parents wouldn’t have paid tax on the value when they died. As it is the value of the land now forms part of his estate. Section 54 IHTA 1984 is designed to stop people avoiding tax by creating interest in possession trusts. It’s fanciful to try and turn it round into an avoidance mechanism.
Much more likely put in a trust to ensure that the property reverted to Starmer and did not go elsewhere
Perfectly reasonable
I can’t agree more….
This seems a little spiteful, given the conclusion that nobody did anything wrong, tax wasn’t avoided and all declarations were made. So much of a non story I’m curious as to your motivation in publishing. I’m normally very impressed with your non partisan writing but this feels different.
I can’t agree more….
Rather a stretch to raise an issue of tax “avoidance”. Making a gift likely to elderlies likely to suffer 40% IHT on their imminent-ish death would be akin to making a gift to HMRC. Failure to voluntarily enter a trap is not really “avoidance” in the public’s understanding.
The likelihood to me seems to be that the parents’ ownership may have obviated the need for Starmer to declare/disclose his ownership of the land
I am no fan of Starmer. I have stopped my membership of the Labour Party. But to me this is a nothing story. He has done much worse. This just feeds the press frenzy to get Labour at all costs.
My family (her children) supported our mother. And always wanted her to have dignity and not feel like it was ‘charity’.
No trusts involved! But I totally understand why he would want them to feel it was ‘theirs’. And why not then get it back when they died. They had all the pleasure of the land. It seems to me an act of kindness. I felt sorry for AR as the press and others have always been out to get her. It is a class thing I’m sure. But in the end she was right to resign and had made some poor decisions. ( Though had she been a well-heeled Tory nothing would have come of it). This Starmer story is a non-story but will still do immense harm to him and the Party. I am done with him for different reasons. But this petty and mean. Wanting to support your parents from a background where every penny counts seems to me a decent way to behave.
Did Kier Starmer pay capital gains on the value of the field when it was sold?
yes
Sir Keir Starmer has just told Laura Kuenssberg that the land did not go into a trust. So it seems he retained ownership of it and allowed them the enjoyment of it as a gift.
Well, well. A socialist buying land, setting up legal measures to maybe avoid a tax liability in the future – it’s almost capitalism!?
(He’s happy to force people who make a living from the land to sell that land though).
Wouldn’t the available tax reliefs amount to £900,000? Although the residence relief was nominally £100,000 for the mother in 2015, you would calculate that she had 100% of the unused residence relief (as it wasn’t actually available when she died so none of it could have been claimed) and apply the percentage to the residence relief applicable at the time of the surviving spouse’s death ie £125,000. Not that it makes any difference to the end result. Seems perfectly logical to me that he would want his parents to have full use and enjoyment of the field but would want it back when they died rather than being shared out with siblings.
Starmer was asked about this live on Kuenssberg today and answered the question verbally.. I believe him that he has not acted illegally or with adverse intent. I’m sure the right wing media will continue to dig the dirt ( Mail stating value of land as £10m-a lie?)
Suffice it to say although not a tax expert my interpretation of Dan’s article confirms Starmer has nothing to answer.
To avoid political bias we must ensure a level playing field. There are few with expertise in this field, and Dan is leading the field when it comes to fielding such questions. To avoid trolls having a field day the use of left field thinking should be minimised..
Why didn’t he just lease the land to his parents on a peppercorn? Seems to achieve the same thing without a complicated trust?
If the land was officially for sale when he bought it I wondered if the reason for purchase was really to prevent other house building next door to his parents house. Now they are dead and gone he won’t be needing to stop any new builds. We are led by Donkeys
The Labour state:- Do as we say not what we do.
Jason from kettering.
Never remember this much scrutiny of politicians tax behaviours under 14 years of Tory rule.
Trusts, it seems, are going to be the next seam of political scandal stories. Dan has very fairly laid out the facts here (I haven’t seen the ST but I doubt it will be presented quite so matter of factly.) Hope someone is going through Farage et als affairs just as thoroughly.
Thanks Dan. All very interesting.
Of course some want to make this non-story into something it obviously isn’t.
I’m a bit confused why the Starmer rep suggests this land was Trusted to them in the “Late stages of their lives” when they actually had nearly a quarter of their lives left to live!
IHT position all noted/many thanks. But what was the CGT effect of this arrangement when the field was sold ie what CGT was payable on what gain, taking into account the presumed trust and the period of ownership subject to the life interest? Do we know whether any CGT payable was paid?
he paid CGT – it’s in the summary of his tax return for that year.
Was the base cost used the value when the life interest ceased? Or the original cost?
If CGT was paid on the difference between the initial purchase and final sale prices, and the field wouldn’t have incurred IHT, then the life interest trust amounts to a tax embracement scheme…
Let’s say I want to let my dad use £1,000 of my money while he is alive. But I want my £1,000 back. In the meantime, he can spend it, invest it, get interest on it, whatever. Let’s call it a “loan”.
Based on your analysis, that might be tax avoidance. I could have just gifted the £1,000 (so I am avoiding making a transfer of value of £1,000 to him), he’s not making a transfer of value to me when he wants to give it back to me, I don’t have to take a KC’s advice to work out whether the gift with reservation rules apply, or whether this is part of an arrangement, etc. It also avoids the £1,000 being in my dad’s estate so (in the unlikely event he pays IHT) there is an IHT saving. It also saves dad re-doing his will to stop the £1,000 being shared 50%/50% with my brother on death.
Now let’s say it is not £1,000 now but a field. How can I lend that to my dad? I can’t as English law recognises licences, leases and gifts of land but not loans of land. So a life interest seems to be the same as a loan. With the same IHT benefits of a loan rather than a gift and gift back.
For me, the stand out difference is that loans (where you really borrow money and everyone fully expects them to be repaid) are straightforward and understandable by everyone. Mention a trust and the newspapers smell blood.
I think that’s fair. “Trusts” are a boo word for many people – usually wrongly.
Absolutely. That’s also why Nigel Farage’s “arrangements” in Clacton are more interesting. He won’t evidence what has actually happened and that feels more worthy of examination in relation to tax.
At best (worst) this simply evidences Starmer’s overly lawyerish pedantry. A normal person would have just given permission to use. Only a lawyer would have considered the situation should he pre-decease his parents and the implications on their continued use of the land. And only a pedant would crack that nut that by creating the sledgehammer of a life interest trust.
Steady, safe, bureaucratic, legalistic and badly communicated. Would you expect anything else from Starmer?
If Sta”rmer “hadn’t thought about tax ” with regard to his land why did he consult a tax adviser
the KC was recently. We don’t know if he appointed a tax adviser at the time.
Unless we are going to review every PMs and more likely every MPs tax arrangements and use of trusts in tax planning I’m not sure what the point of this is apart from the fat he failed and register the land in the interests list.
Are we viewing all trusts as unethical now due to the tax implications? If so maybe the Royal Family could start paying some iht for a change
Not that it makes any difference, but I thought the value of a life interest was included in the estate for IHT purposes?