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One method of reducing the value of your Estate for inheritance tax purposes is by placing an investment into a Discretionary Trust. Once placed, the investment will fall outside of your Estate after seven years. Most people will not wish to place over the Nil Rate Band (£325,000 in 2021) into a Trust as any amount over that sum will be liable to an immediate 20% tax charge.
At Bluebond Tax Planning, we provide our clients with a comprehensive solutions to all the legal,tax and financial planning elements, which is essential to provide you with the most suitable IHT advice
This is often suitable for people who want to retain full access to their capital while ensuring that any growth on the investment immediately falls outside of their Estate.
Usually, around £10 of the amount placed into the Trust is counted as a settlement to establish the Trust. The remainder is a loan repayable on demand.
As such, there is no limit to the amount that can be placed into this type of arrangement and the original capital invested is always inside the Settlor's Estate for inheritance tax purposes.
The main benefit here is that you retain a right to your capital while ensuring any growth is immediately outside of your Estate for inheritance tax.
This is often suitable for people who want to retain full access to their capital while ensuring that any growth on the investment immediately falls outside of their Estate.
Usually, around £10 of the amount placed into the Trust is counted as a settlement to establish the Trust. The remainder is a loan repayable on demand.
As such, there is no limit to the amount that can be placed into this type of arrangement and the original capital invested is always inside the Settlor's Estate for inheritance tax purposes.
The main benefit here is that you retain a right to your capital while ensuring any growth is immediately outside of your Estate for inheritance tax.
This is often suitable for people who wish to place money outside of their Estate for inheritance tax purposes (after seven years) and retain the right to a fixed amount of capital return annually.
The maximum amount that can be withdrawn tax-free, as it is deemed a return of capital, is 5% a year for 20 years. You could choose 4% a year for 25 years.
The positive is that the original capital invested is outside of your Estate after seven years. The downside is the withdrawal is fixed and cannot be adjusted while the Settlor is alive.
Due to the "discount", it is possible to place sums significantly in excess of the Nil Rate Band into this arrangement without generating an immediate 20% tax liability.
This is often suitable for people who wish to make an outright gift to Beneficiaries and retain control of the distributions from the Trust.
The positive is that all the funds will be outside of the Estate after seven years. However, the Settlor and spouse cannot have any access to the capital or growth at any time.
It may be suitable to "drip-feed" money to Beneficiaries over a period of time while ensuring the money is outside of the Estate after seven years.
This is often suitable for people who wish to place money outside of their Estate for inheritance tax purposes (after seven years) and retain the right to a fixed amount of capital return annually.
The maximum amount that can be withdrawn tax-free, as it is deemed a return of capital, is 5% a year for 20 years. You could choose 4% a year for 25 years.
The positive is that the original capital invested is outside of your Estate after seven years. The downside is the withdrawal is fixed and cannot be adjusted while the Settlor is alive.
Due to the "discount", it is possible to place sums significantly in excess of the Nil Rate Band into this arrangement without generating an immediate 20% tax liability.
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This is often suitable for people who wish to make an outright gift to Beneficiaries and retain control of the distributions from the Trust.
The positive is that all the funds will be outside of the Estate after seven years. However, the Settlor and spouse cannot have any access to the capital or growth at any time.
It may be suitable to "drip-feed" money to Beneficiaries over a period of time while ensuring the money is outside of the Estate after seven years.
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This is often suitable for people who wish to place money outside of their Estate for inheritance tax and still have access to all the original capital back in the event they require it.
The investment is outside the Estate after seven years, and every year the Settlor has access to just over 14% of the original capital invested plus growth (the growth is liable to income tax).
All the capital is not available back in any one year, but as a backup plan in the event of needing long term care. In old age this is a very effective plan. When the Settlor dies, the Trustees and Beneficiaries of the plan, including their surviving spouse, can access all of the investment at one time if required.
This is often suitable for people who wish to place money outside of their Estate for inheritance tax and still have access to all the original capital back in the event they require it.
The investment is outside the Estate after seven years, and every year the Settlor has access to just over 14% of the original capital invested plus growth (the growth is liable to income tax).
All the capital is not available back in any one year, but as a backup plan in the event of needing long term care. In old age this is a very effective plan. When the Settlor dies, the Trustees and Beneficiaries of the plan, including their surviving spouse, can access all of the investment at one time if required.
Usually, No. Taper Relief only applies to investment into Trust that exceed the Nil Rate Band and most people do not place that big of an investment, as it would be liable to an immediate tax at 20%.
Yes, but it will be liable to a tax charge of 20% immediately and so this is rarely done. However, for a Loan Trust, and possibly a Discounted Gift Trust, where in both cases the actual gift portion of the Trust is below the Nil Rate Band, an investment of over the NRB is often placed.
Usually the Settlor, spouse and adult children. We always recommend a reserve Trustee who is not a Beneficiary to take over once the Settlor or spouse dies. This reserve Trustee will be a trusted person who will carry out your wishes in case your Beneficiaries disagree on how assets are to be distributed. It is also possible, but rare, to appoint professional Trustees and they will charge for their services.
This is a very complicated area and depends on the assets the Trust holds and the type of Trust set up. It is always best to get experienced advice on this.
Provided they have been set up correctly, after seven years any gift into Trust will be outside of your Estate. It is possible that HMRC may change the rules, but this has seldom been done retrospectively, and the rule changes apply to new Trusts not existing ones. The certainty on this is higher than most other types of IHT planning except for outright gifts.
This depends on the type of Trust. Some Trusts are set up by Lawyers which are chargeable depending on the complexity. Some Trusts are provided "free" as part of a plan available such as an investment plan provided by regulated financial advisers. In our case, we always explain the full costs of all of our services which are usually fixed and quoted in advance so people can determine the value for money.
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The information contained in this web site is for UK consumers only. Like most firms of solicitors and accountants, Bluebond Tax Planning is not regulated by the FCA. The content of this website does not constitute FCA regulated financial advice and all content is provided for general information purposes only. Bluebond is not responsible for any action you may take as a result of information on this site. All advice will be delivered on a personal basis once we fully understand your situation and our client agreements have been signed.
