Gift out of discretionary trust into bare trust

smith

Hi all,

So we have a client who settled £20k into a discretionary trust a year ago (bond investment). We are now looking to assign the bond into a bare trust.

Can anyone give me their thoughts on the IHT treatment of this. Was obviously a CLT going into the original trust, but does the subsequent transfer out a year after change this? I can't find anything on this anywhere.

Thanks

TArcher_Quilter

Hi,

The assignment to a bare trust will not alter the initial gift made - The £20k chargeable lifetime transfer (CLT) will still stand and only leaves the estate if the settlor survives the usual seven years.

There is a potential for an exit charge - as the bond will cease to be 'relevant property' (the name given to the IHT rules which apply to discretionary trusts).

As a rule of thumb, no exit charge will arise in the first 10 years if no entry charge applied when the gift was made to the trust. You can check this using our guides and calculator: https://quilter.com/help-and-support/technical-insights/technical-insights-articles/entry-periodic-and-exit-charges-quick-reference-guides/

I hope this helps, Tom