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Exit charges in first ten years

benjaminfabibenjaminfabi Moderator
edited August 20 in Technical stuff

Hi,

Trust set up via Will (in 2019), so no IHT on entry. £400k settlement, held in offshore bond, intended to fund education of grandchildren and we will do this using segment assignment. Trustees want to assign about £10k of segments to first beneficiary for the coming academic year.

I think there will be an exit charge based on a notional entry charge. ie £10,000 x c1.12% x (n/40) with n being complete quarters since date of death.

1.12% is £400k - £325k = £75k.
£75k x 6% = £4,500.
£4,500 / £400k = 1.125% notional entry charge.

Am I on this right track with this?

Thanks

Benjamin Fabi 
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Comments

  • les_cameronles_cameron Member
    edited August 21

    Yes.
    https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm42114

    I assume you mean appointing to children if under 18 - assigning will be troublesome I think.

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  • benjaminfabibenjaminfabi Moderator
    edited August 21

    I think the plan is to appoint to the child, via the assignment of segments, who then surrenders the policy and provides the trustees with the amount needed for the tax liability. That way each beneficiary pays their own way with taxes due.

    [edit] sorry, forgot to add she is over 18.

    Benjamin Fabi 
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  • les_cameronles_cameron Member

    Appointing and assigning are two different things I think. Appointing maintains legal ownership and transfers beneficial ownership - so trustees can do everything. Assigning transfers legal and beneficial ownership. So beneficiary has to do everything.

    Either way the tax liability falls on beneficiary. And you can appoint over 18 if you like to keep admin lower.

    The trust shouldn't have any tax liability.

    Remember the beneficiary is liable for the exit charge.

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