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Chargeable lifetime transfers

Hello there

Client has Estate worth £1.5m, within which a plot of land worth £100k.  Client wishes to gift land to children.  Advice has been given to do this via a discretionary Trust as the £100k is then outside of Client's Estate.  

Am I correct in thinking this makes no difference to the IHT position:

If gifted to children outright, this is a PET.  If Client dies within seven years the land falls back into the Estate of the Client and is liable to IHT over and aboe nil rate band.

If put into Discretionary Trust, and Client dies within seven years, the value of the lifetime transfer is deducted from the remaining available nil rate band so the net result is the same as an outright gift?

There is no CGT exposure as market value is equal to cost.






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14th Nov 2017 17:20

It's not all about IHT though, if the kiddies own this land themselves, outright (assuming that they are over 18) they can sell it and spend the money on gambling, drugs, fast cars, or even just waste it. A DT does protect the value until they are a sensible age, or at least until after their first divorce.

If however they are minors a trust will be essential.

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14th Nov 2017 17:44

You are correct that it is IHT neutral.

However, where did the advice come from, and why was it given?

If the only reason to gift it to the children through a trust (and post- 2006 and IIP works just as well as a discretionary trust) is to holdover any CGT, and there is no CGT, then it's a pointless exercise.

As Vaughan notes, the discretionary trust does protect the asset.

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