What is a Chargeable Lifetime Transfer or CLT?
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CLTs are gifts into Trust, and they too have no limit. Yet, if you gift more than the Nil Rate Band (currently £325,000) then the excess will be charged at 20% immediately.
What is a chargeable lifetime transfer? Very simply, it's a gift into a discretionary trust.
The difference between this and a Potentially Exempt Transfer (PET) is that if you place more than £325,000, which is the nil rate band, into a trust, there will be an immediate tax charge of 20%, which is why it's a chargeable transfer. As such its very rare for anyone to place more than £325,000 into a trust, as opposed to a Potentially Exempt Transfer on which there is no limit.
It’s really important that when people are making gifts into trusts, and they're also gifting more money away to their children, that they do it in the right order. The right order is to do the gifts into trust first and Potentially Exempt Transfers later. Otherwise, it has an impact upon the tax on the trust at the periodic charge 10 year anniversary, (and if somebody dies within the seven years as well). So, for chargeable lifetime transfers, we've never given more than £325,000 into a trust, because you would pay that 20% tax charge and therefore it's not worth it. For most people that would be the effective limit.
After seven years a gift to a trust is outside of your estate in the same way as a Potentially Exempt Transfer, unless you make another gift in, let's say, six years later and then died six years after that it would affect the previous trust. So, it needs to be carefully done and really one shouldn't be making gifts into trust without expert help.
You could make mistakes and that could end up costing your family more in tax than it needs to.