Born free, taxed until death…and afterwards too!

Published by Paul Howson on 17 April 2019

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Inheritance tax (IHT) is becoming a feature of more and more individual estates as asset values rise but the threshold beyond which this tax is paid remains static. Even with the reasonably recent introduction of the Residence Nil Rate Band affording certain qualifying individuals the opportunity to leave more to beneficiaries before IHT is charged, the Treasury is still set for a “bumper bonus” as the years go by.

One solution to this tax liability is the giving of assets directly to a beneficiary, although how do you know that the income from the asset will not be required by you in the future for spending on ever increasing household bills or for long term care? Many people leave capital sums sitting in bank or building society accounts, spending the interest although preserving the capital sum. Why not then continue receiving this income but ensure that the capital sum is outside of your estate, certainly after seven years, but with the potential for a large percentage of this to be out of your estate from day one?

How is this achieved? By use of a Discounted Gift Trust. This allows for an individual to pay monies to a discretionary trust as a chargeable lifetime transfer and for an automatic discount against IHT to be given based on the individual’s health and the level of income that they choose to receive back from this trust. This income is pre-set at the commencement of this arrangement and is usually generated by use of an investment bond through an insurance company. Thus, an individual retains the right to receive income whilst reducing the overall liability to IHT.

If you would like to discuss how this might be of use to you please contact Paul Howson at Kreston Reeves Financial Planning here or on +44 (0)330 124 1399.

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