IHT, discretionary trusts and charities

IHT not charged on gifts to charity in Will. Does this apply if placed in discretionary trust.

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Hi

I appreciate that amounts gifted to charities in a Will are exempt of IHT. Therefore, a straight gift to a charity is is exempt from IHT. Likewise, if say the residue of an estate is placed in a Charitable Will Trust it therefore makes sense that this is free of IHT (as the Charitable Trust is a registered charity).

A recommended alternative to the Charitable Trust is to place this residue into a discretionary trust with all the beneficiaries being registered charities. The executors will then distribute the monies to the registered charities as outlined in the Trust document.  

My question is simply, if assets are transferred into a discretionary trust where the only beneficiaries are to be registered charities, does the exemption from IHT still apply? Or if not and the IHT has to be paid can it be claimed back later? 

Replies (7)

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By Tax Dragon
02nd Mar 2020 06:47

Settle72 wrote:

Hi

I appreciate that amounts gifted to charities in a Will are exempt of IHT. Therefore, a straight gift to a charity is is exempt from IHT. Likewise, if say the residue of an estate is placed in a Charitable Will Trust it therefore makes sense that this is free of IHT (as the Charitable Trust is a registered charity).

A recommended alternative to the Charitable Trust is to place this residue into a discretionary trust with all the beneficiaries being registered charities. The executors will then distribute the monies to the registered charities as outlined in the Trust document.  

My question is simply, if assets are transferred into a discretionary trust where the only beneficiaries are to be registered charities, does the exemption from IHT still apply? Or if not and the IHT has to be paid can it be claimed back later? 

A recommended alternative, you say? Why are you not asking your question of the person making that recommendation?

You might want to go back to them for another reason, too. I'm not sure you have understood their recommendation. In one breath you say that the trust is discretionary; in the next you say that the trust document (the Will) sets out how the money should be distributed. Which is it?

One final comment. Some of my fellow members will be displeased with me because I have responded to a question that has plainly been asked by someone who is not an accountant or tax professional and who does not belong in this forum. You should by rights have been ignored and many members will indeed ignore you. But I've responded so as to ask a question back at you: you have seen how easy it was to join this forum; most members, like you, have wandered in with minimal knowledge and understanding; any of them might respond with a pig-ignorant answer (some seem to be so minded). What has possessed you to ask your question of this bunch of misfits, rather than going back to the advisor to clarify the points in their advice that you didn't understand?!

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Replying to Tax Dragon:
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By Settle72
08th Mar 2020 21:05

Thank you for your reply. I have asked the question as the legal advice given was that a Charitable Will Trust or a Discretionary Trust could be used as vehicles to make distributions from an estate to charities. I appreciate that the charities could simply be listed in the Will itself but this has its downsides (that I will not go into here). Whilst I appreciate that gifts to charities are exempt from IHT, I was simply wanting to know how this could be achieved in practice. The solicitor is unable to advise. I expect there to be something in the HMRC Manuals but was simply hoping that someone could direct me to the relevant page.

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Replying to Settle72:
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By Tax Dragon
08th Mar 2020 23:32

Settle72 wrote:

Whilst I appreciate that gifts to charities are exempt from IHT, I was simply wanting to know how this could be achieved in practice. The solicitor is unable to advise.

With respect, the solicitor is going to have to advise - s/he's the one drafting the document!

In terms of the tax rules, I think your question about s23(6)(a) remains unanswered. If it means what I think it means, I don't see a time limit. Montrose refers to s144, which sidesteps your question (or, more accurately, shows that your question doesn't really arise in the first two years).

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Replying to Tax Dragon:
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By Settle72
09th Mar 2020 19:42

Thank you for your response; much appreciated. I agree I need to speak to the solicitor, but this also points me in the right direction.

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By Montrose
02nd Mar 2020 10:49

I suspect what is being recommended is a provision giving Executors the power to choose the charitable beneficiaries. If so there is a two year window to exercise their discretion and retain the IHT exemption

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Replying to Montrose:
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By Tax Dragon
02nd Mar 2020 11:03

What bemuses me, if you are right, is how that information wasn't included in the recommendation.

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Replying to Montrose:
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By Settle72
08th Mar 2020 21:10

Thank you very much for the reply and sorry for the delay in acknowledging. You are correct in your assertion above; I should have made that clearer in my original post. By chance do you have a link to the relevant HMRC page that gives this.

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