Inter vivos discretionary trust - CLT & GROB?

Dear all,

I am going around in circles slightly and hope you might be able to help me.

My client settled funds into a Discretionary Trust within the last seven years. She is a beneficiary of the Discretionary Trust.

My understanding is that the gift into the trust was a Chargeable Lifetime Transfer and that the Nil Rate Band on death will be reduced by the value of the gift unless she survives seven years from the gift into trust. The gift did not exceed the Nil Rate Band at the time it was made.

Additionally, I understand that this is a Gift with Reservation of Benefit and that my client’s taxable estate on death will be increased by the date of death value of the Discretionary Trust.

Am I on the rights lines? It seems tough that my client may suffer both the increase in her estate by virtue of the GROB together with the reduction in her NRB by virtue of the LCT…

Many thanks all.

Lucy Kealy
Clarkes LLP

As it is a discretionary trust, she does not necessarily have to be a beneficiary.

As a settlor, she could nominate alternative beneficiaries for the trustees to consider, which would ensure the proceeds did not fall back into her estate and be subject to GWR and IHT.

Francesca Gandolfi
Canada Life

In the situation you describe there should be relief against a double charge to IHT, pursuant to the IHT (Double Charges Relief) Regulations, SI 1987/1130.

Paul Davies
Clarke Willmott LLP

Thank you both for your very helpful replies.

It now looks as though the initial gift into the trust did exceed the available NRB at the time (c. £375,000) but that this was not reported.

Does (1) the immediate 20% IHT charge on this (now overdue and presumably there may be penalties too), and (2) the additional 20% charge due if my client doesn’t survive the requisite seven years, affect the double charges relief point?

I must say that we were not involved in setting up this trust.

Many thanks again.

Lucy Kealy
Clarkes LLP

The lifetime tax has to be paid. Relief against a double charge will apply in relation to the tax payable on death.

Paul Davies
Clarke Willmott LLP