Gift out of discretionary trust into bare trust
smith
Member
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
Comments
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
Thanks Tom - couldn't find anything specifically about this, so very helpful
And there's no need to settle it on another trust you could just appoint the bond (subject ot trust provisions)
Thanks @les_cameron - the beneficiary is a minor so I think the Bare trust will still be needed
No - you can place the existing trust property under bare trust by appointing - you don't need a new trust (unless your current trust does not allow it which would be unusual).
Appointing maintains the legal ownership of the property i.e. with the trustees but changes the beneficial ownership i.e. to the beneficiary. The change of beneficial ownership means taxation falls on the beneficiary i.e. it is a bare trust.
It's covered in bond school 4 - https://www.mandg.com/wealth/adviser-services/tech-matters/events-and-cpd/session-004-whos-liable-individuals-estates-trusts