I have been asked to consider if there is a period tax charge applicable to the following case.
A discretionary trust was setup (2005) by the deceased prior to death and assets transferred following their death (2007) via the will. There is no information currently available, however the IFA confirms that the asset is now an offshore bond.
Would this be subject to any anniversary charges, and is their anything else i should consider?
Hi there if the value of the assets exceed the available nil rate band (assuming no prior gifts had been made) then yes a periodic charge would have been due on the ten year anniversary.
Was the settlor UK domiciled at the time the trust was created?
If so then IHT is potentially in scope regardless of where the trust property is situated, subject to its value exceeding the available IHT threshold, which will have been established when the trust was created, depending on any other lifetime chargeable transfers he had made in the preceding 7 years etc.
If not then this might possibly be an excluded property trust and thus to the extent the assets are offshore, it will be exempt from IHT.
The 10 year anniversaries will arise from when the original trust was created, not when the Will assets were added, although this would have affected the rate of IHT charged in 2015, if any, since they had not been relevant property for the whole 10 years by 2015. You will also be aware that there is a 6 month time limit for both submission of a completed IHT return and payment of any associated IHT, with automatic penalties and interest for late filing or payment.
Anniversary (ie 10 year) charges would apply. The ten year anniversaries are based on the date the trust was created ie date property was first comprised in the trust,2005, (not date when bond was added to the trust under the will, 2007).
Was the bond a single bond or a cluster of identical bonds? This will impact on tax liabilities where encashments are made (Shanthiratnam v HMRC 2011].
Offshore bonds give rise to no 20% tax credit. Trust rate of 45% applies to chargeable event gains. Appointment to trust beneficiaries may be tax efficient on any event gains.
Assume trust is UK resident and original settlor UK domiciled.