Bond gains when settled into a life interest trust
Wildparaplanner
Member
Hi all,
We have a client (trustee) where the deceased died September 2024 with four onshore bonds (all jointly settled and deceased is the first to die). The will states the estate is left to a life interest trust.
We are trying to figure out what the tax situation would be if the bonds are surrendered, and whether the bond could be assigned to the surviving spouse or if this goes against the life interest element (as you are distributing capital i believe?).
As we are now in the new tax year, does the situation change with regards who is liable for any chargeable event gains? Does it now fall on the trust (and therefore 25% tax (including the tax credit)) or would it fall partly on the spouse as joint settlor of the bond?
Appreciate any guidance on this
Thanks
Wild
Comments
You have said the four bonds are "jointly settled". Do you mean that they are jointly owned (by deceased & spouse) with multiple lifes assured? Or are the 4 bonds all single owned, multi life assured?
The trust may be written is such a way as to permit capital to be distributed to the person with the life interest so maybe check that first as it would be the easiest thing to do. Not uncommon that the surviving spouse would be both life tenant and a discretionary beneficiary. Can also still vary the will if it simplifies matters for all concerned? Otherwise I believe the trust will pay the tax if the bonds are sold.
The trust( IPDI) comes into force from the date of death. Therefore, the bonds (if surrendered in tax year following the death of the owner) are subject to tax in the hands of the trustees.
As @TomLloyd_Read has said, capital distribution to spouse (by assignment or other) can only be done if trust allows it.
..and also, if there is no right to capital, the bonds cannot be used for the surviving spouse.