Using a Discounted Gift Trust to avoid Inheritance Tax
What are discounted gift trusts?
A discounted gift trust or DGT is a way of setting assets aside but at the same time continuing to draw an income from the capital. As discounted gift trusts move those assets outside of your estate, they can be a powerful tool in minimising your Inheritance Tax liability.
At Principle First we can discuss using discounted gift trusts as part of our Inheritance Tax advice.
Do you want to discuss discounted gift trusts as a way to avoid Inheritance Tax? Ask Principle First today with an online financial advice enquiry or ring 0800 678 5929 now!
With other types of trust, in cases where the person setting up the trust (‘the settlor’) continues to benefit from the assets in the trust, any income derived is heavily taxed. While some tax is due on assets in discounted gift trusts, they are much more tax-efficient than other trusts as a means of avoiding Inheritance Tax.
A discounted gift trust may be suitable for someone with considerable cash savings, or who has recently sold a property and has a large sum to put away. In using discounted gift trusts you can, for example, still hold that cash as part of your retirement planning, but at the same time benefit from it in the meantime. As the trust keeps the cash outside of your estate, it does not push the value of your estate towards your Inheritance Tax threshold or jeopardise the efficient use of your Inheritance Tax nil rate band.
Using discounted gift trusts is complicated by the fact that the Revenue makes a judgement, on a case by case basis, as to how much of the assets in the trust are deemed to be exempt from Inheritance Tax. In some cases the taxman may decide that the discounted gift trust constitutes a potentially exempt transfer or PET, in which case it would be subject to the 7-year rule and the special Inheritance Tax rates which that involves.
In other cases, the discounted gift trust may be deemed to have taken on the features of a discretionary trust, and a so-called chargeable lifetime transfer may arise.
Do you want to discuss ways of using discounted gift trusts? Ask Principle First today with an online financial advice enquiry or ring 0800 678 5929 now!
