DGT tax on death of settlor - Technical Question

Redawg31

Hi there, we have a client who has a discounted gift trust (onshore). The settlor has now died (7 years done). her two daughters were also lives assured. If they surrender in the same tax year as the settlors death, what would be the tax treatment?

Our understanding it would be on the Settlor, which is handy because she died early in the tax year.

thanks in advance.

bradbone

Hi,

If the trust is on a discretionary basis then any chargeable gain arising in the tax year of death will be assessed against the settlor at their tax rate. This can then be reclaimed from the trustees.

If the trust is on a bare basis then the beneficiaries will be liable for the tax due on the chargeable gain.

Kind regards,

Brian (Transact)

@Redawg31 said:
Hi there, we have a client who has a discounted gift trust (onshore). The settlor has now died (7 years done). her two daughters were also lives assured. If they surrender in the same tax year as the settlors death, what would be the tax treatment?

Our understanding it would be on the Settlor, which is handy because she died early in the tax year.

thanks in advance.

@Redawg31 said:
Hi there, we have a client who has a discounted gift trust (onshore). The settlor has now died (7 years done). her two daughters were also lives assured. If they surrender in the same tax year as the settlors death, what would be the tax treatment?

Our understanding it would be on the Settlor, which is handy because she died early in the tax year.

thanks in advance.

TomLloyd_Read

Yes, that is correct, assuming it was a a discretionary trust. The settlor’s personal representatives will be responsible for paying any tax in the final tax return, but I believe they have a right to reclaim any tax they pay from the trustees (which all sounds a bit messy to be honest!). I guess if there are different beneficiaries of the will and the trust, it is prudent for the personal representatives to reclaim. And of course, it may be more beneficial to assign the bond to the beneficiaries prior to surrender, depending on the tax position of all parties.

Redawg31

thanks both, actually got some really good technical help from Aberdeen. Refuse to call them Abrdn.

https://techzone.abrdn.com/anon/public/iht-est-plan/Taxation-of-Bonds-in-Trust#anchor_0

benjaminfabi

moved and changed title as there is some useful stuff here that would otherwise avoid a search