I have recently come across a Flexible Life Interest Trust (FLIT) where the Trustees are planning to invest in an Investment Bond and make capital withdrawals of up to 5% per annum to the “life tenant”. The trust instrument contains powers to do this.
But what about tax? On the basis that on death, the Life Tenant is treated as the owner of the FLIT, is the Life Tenant then treated as having made PET’s of the capital withdrawals made during the lifetime of the Trust?
Any thoughts please.
Brewer Harding & Rowe
If its a post 2006 inter vivos trust, it will be relevant property and capital distributions will just be at risk of an exit charge - possibly none if all below the nil rate band. The trust won’t form part of the life tenant’s estate.
If the trust is settlor interested (but settlor is not the life tenant), it may be a GROB in which case each capital distribution will be a deemed PET by the settlor.
If it’s a pre-2006 trust, capital distributions to the life tenant will not be PETs as they remain within his/her estate. They could also be a deemed PET in the scenario outlined above.
Osborne Clarke LLP