The Discounted Gift Scheme allows a person (the donor/settlor) to reduce the potential inheritance tax (IHT) liability on their estate by making a gift into trust, whilst at the same time still retaining the right to receive fixed regular payments at specified intervals for the rest of their life or until the bond is exhausted. The initial gift a person makes may be discounted for IHT purposes.
- It could immediately reduce the value of the donor’s/settlor's estate for IHT purposes.
- The whole of the initial cash gift will be outside of the donor’s/settlor's estate after seven years.
- Any growth on the bond within the trust is outside of the donor’s/settlor's estate from the outset.
- It allows the donor/settlor to receive fixed regular payments at specified intervals for life or until the value of the bond is exhausted, whichever comes first.
- The trust can pay any IHT or income tax liabilities which arise in the trust.
- The trust can pay ongoing adviser fees. However, please note that any ongoing adviser charges taken from the bond will count towards the 5% limit before immediate liability to income tax.
- After the donor’s/settlor's death, the bond in the trust fund will be held for the benefit of the people named as beneficiaries of the trust.
The value of the bond held within the trust can fall as well as rise, and your clients and/or their chosen beneficiaries may get back less than your clients invest.