My parents and I are trustees of a Discretionary Trust in which the settlor (my now deceased grandmother) settled an insurance policy where the lives assured are the aforementioned trustees.
This was originally set up as part of IHT planning.
The policy was originally split into 20 segments to increase flexibility and I would like to know what the tax implications would be of transferring one/more of these segments out of the discretionary trust.
Would such a transfer be a taxable event (1) on the behalf of the trust, or (2) on behalf of the recipient?
I am aware that for the first 20 years 5% of the original investment value can be withdrawn as a de facto return of capital without tax implications and also that unused 5%s in previous years may be taken in future years on a roll up basis.
Many thanks for any replies.
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When was the trusts settled (was it a CLT?)
Are the trustees/beneficiaries UK res or not?
Talk to the life company but broadly:
...all the policies may be in the trust at outset, but at some point some may come out of the trust – because the trustees have assigned them to one of the beneficiaries. Where that happens, the assigned policies will be taxed as belonging to an individual, while those still in the trust will be taxed as policies in a trust.....
http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0004
(page 2 - assignment not for money or monies worth is not usually a chargeable event).
A Chargeable Lifetime Transfer. The insurance company might give guidance as well to avoid particularly nasty traps.