Q1. Are regular payments to the settlor from a Discounted Gift Plan which was set up after 22 March 2006 subject to exit charges?
A1. No. As the settlor's rights are held on a bare trust, there is no charge on exit and the payments are not added back in to calculate the 10 year periodic charge.
Q2. What is the value of the chargeable lifetime transfer when setting up a Discounted Gift Plan?
A2. A discount is calculated by valuing the retained rights due to the settlor. The value of the chargeable lifetime transfer is therefore the value of the gift, less the discount.
Q3. Can income from a Discounted Gift Plan be varied?
A3. The level of income paid to the settlor must be fixed at outset so that it can be valued for the purpose of calculating the discount. Any excess payment made to the settlor will constitute a breach of trust by the trustees and may also negate the IHT effectiveness of the trust.
Q4. Can spouses or civil partners take out a joint Discounted Gift Plan?
A4. Yes. A joint settlor version of the Plan is available. On first death the specified withdrawal payments will continue to be paid to the survivor. This is a gift to the survivor for IHT purposes but it is usually covered by the spouse exemption.
Q5. How is a joint settlor Discounted Gift Plan treated for IHT purposes?
A5. Usually each settlor is treated as if they had each made a separate gift into trust of half of the initial investment.
Q6. Can more than one Discounted Gift Plan be taken out by a client?
A6. Yes. But it is important that these have different start dates. Whenever you set up more than one trust, you should always make sure that these are on different dates or the IHT payable could be increased as a result.
Q7. What happens when a beneficiary dies?
A7. If a 'main beneficiary' dies, their share of the investment is not treated as part of their estate for IHT purposes. This is because the gift into the Plan is treated as a chargeable transfer for IHT purposes. The Trustees should consider appointing the share of the deceased beneficiary to a new beneficiary from the list of Potential Beneficiaries. This is not treated as a transfer for IHT purposes and will not increase with IHT payable by the estate of the deceased beneficiary.
askTECH
askTECH is an interactive system from Standard Life that offers you technical support at the touch of a button. Topics covered include Investment, Pensions, Life and Protection and the database is updated on a regular basis. You can access askTECH via Techzone.
No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this content.
Tax and legislation are liable to change. The information given here is based on Standard Life’s understanding of law and HM Revenue & Customs practice at the date of publication. Tax reliefs may be altered and their value to the investor depends on their financial circumstances.
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