Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... More have again intimated that they are comfortable with the concept of so-called “Discounted Gift Trusts” which can be used as part of an inheritance tax mitigation strategy.
In short, these arrangements typically involve an individual (the settlor) putting a capital sum into an investment bond. The bond is held in trust for future generations, and the right to certain withdrawals from the bond is held separately for the settlor for his/her lifetime. The value of the bond and the initial gift into trust is therefore discounted by the time-value of the “income stream” retained by the settlor.
HMRC have issued some helpful guidance concerning the valuation factors to be used in these instances (Revenue & Customs Brief 22/2013), which should give those pursuing this strategy some comfort around the inheritance tax outcome.
Whilst the performance of investments in the bond is of course key to the effectiveness of the planning, this can represent a tax-efficient way to transfer a capital sum and future growth thereon (albeit net of the intended withdrawals) to younger generation(s).
Please contact us if you would like to discuss Discounted Gift Trust planning or managing an exposure to inheritance tax more generally.