Independent Financial Advisors - IFA Bolton, UK

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Discounted Gift Trusts

Discounted Gift Trusts are a method of reducing Inheritance Tax liability suitable for both single people and couples. They are sometimes referred to as Discounted Gift Plans or Bonds.

The potential advantages of investing in such Trusts are that:

• They immediately reduce the value of your Estate in relation to IHT

• They reduce the value of your Estate even further if you survive more than seven years after investing in the Trust

• They enable you to make withdrawals from the plan whilst ensuring that the funds are held in Trust and outside of your Estate

• They allow any remaining funds after your death to be passed to your loved ones

• If the value of the bond grows faster than the level of withdrawals made, the growth in value will not form part of your estate for IHT purposes

In this notional example, Mr. Adams chooses to invest £100,000 in a Discounted Gift Trust. Mr. Adams is 60 years old and in good health. He chooses to withdraw £5,000 per annum from the plan.

His investment immediately receives a discount of £66,530, which means that this amount is not liable to Inheritance Tax. (Note: on each occasion the discount amount is calculated based upon the investor’s age, health and the amount of withdrawals to be made from the plan. Each calculation is subject to agreement by HMRC.)

The remaining £33,470 is treated as a Potentially Exempt Transfer (PET) and will be subject to Taper Relief. If Mr. Adams survives another 7 years it will become totally exempt from Inheritance Tax altogether.

 

 
No Discounted Gift Trust

Death within 7 years
of the start of the
Discounted Gift Trust

Death after 7 years
of the start of the
Discounted Gift Trust

Original Investment

£100,000

£100,000

£100,000

Discount Applicable

n/a

£ 66,530

n/a

PET value

n/a

£ 33,470

n/a

Amount potentially
liable to IHT

£100,000

£33,470

£0

Maximum amount
of IHT

£40,000

£13,388

£0

 
 
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