Widowed lady died late last year and had 2 discounted gift trusts
The dates both trusts were incepted - 06/06/2008 & 21/03/2006
No additional assets were added to the trust since inception
Monthly payments to the widow were: £746.53 & £833.33
premium Trust 1
Start date of withdrawals - 11/08/2006
Value of retained interest - £93,528
Discounted value of gift - £106,472
Premium Trust 2
£179,168 premium
Value of retained interest - £63,877.44
Discounted value of gift - £115,290.56
I’m aware that these gifts into trust pass outside of the estate for IHT purposes however, I’m a little confused where to enter the initial premiums in the IHT403.
Assuming these are not open to challenge as to their tax effectiveness in principle:
1 the lifetime gifts have ceased to cumulate, so IHT403 is not in point.
2 there are no GROBs: IHTM20424
3 there is no obvious listed reporting category in IHT400 so an entry in box 76 is the place to report the retained interests: page 50 IHT400 Notes.
Valuation of these (see IHTM20245) will probably be non-controversial on the death of the owner, as there is no future life expectancy factor to require discounting, unless the right is not to a fixed sum but to an underlying asset. During lifetime the regular payments are often funded by another asset e.g. a NQ life policy held by the trustees on other trusts from which part surrenders are made, tax-free up to 5% p.a. There may be an income tax cost of funding the remaining amounts due to the deceased’s estate or some delay in going liquid but that is unlikely to affect valuations, unless the retained right itself was not to full immediate payment on death.
The fact that the value of these rights was theoretically less at the time ordained by s.4 IHTA i.e. the moment before death is overridden by s.171.