I have an estate where a DofV has been entered into redirecting £300,000 into a Discretionary Trust. The monies have been invested in an Offshore Bond which, on the face of it, does not produce a taxable income.
As there is no immediate charge to tax, do forum members agree there is no need to register this trust with HMRC under the TRS?
I appreciate there will be a need to do so if circumstances change and the Trustees will need to file a 10 yearly return fro IHT purposes.
Brewer Harding & Rowe
It is HMRC legislation that an account is required by HMRC if a lifetime transfer is chargeable to IHT at the time it is made.
However, an account is not required if:
• The value of a new policy gifted into trust, together with any other chargeable transfers in the previous seven years, does not exceed the nil rate band (£325,000).
• The value of an existing policy gifted into trust, together with any other chargeable transfers in the previous seven years, does not exceed 80% of the nil rate band (£260,000).
• The value of the premium gifted into trust, together with any other chargeable transfers made by the individual in the seven year period ending with the gift, does not exceed the nil rate band when exemptions and reliefs are ignored.
In your example therefore, this will be classed as an existing policy and so, as it is over 80% of the NRB, even though there is no immediate charge, it should still be registered.
Thank you for your detailed response Francesca. I am still slightly unsure whether to register. The transfer was of cash (being the asset settled for the purposes of the instrument creating the settlement). The Trustees then used the settled cash to purchase the Offshore Bond. On the basis that the Bond itself was not transferred into the settlement, do you consider it is still necessary to register?
Brewer Harding & Rowe
The 80% limit is relevant only when determining the need to submit a report to HMRC using Forms IHT100 etc. The need to make an entry into the trust register is triggered only by a tax liability being levied on the trustees – the 80% limit is irrelevant for this purpose.
I don’t know if the £300,000 that is subject to the deed of variation is already subject to IHT. Even if it is, though, I would submit that the responsibility for paying it would rest with the executors of the estate and not the trustees of the trust, so that there may be no need to make an entry into the trust register.