A guide to investment for trustees 18 Anti-avoidance rules Anti-avoidance rules within taxation law are designed to close ‘tax loopholes’ and limit the opportunities for people to take deliberate measures to avoid tax. Chargeable event rules The rules under which life assurance policies are taxed. A transaction, encashing a bond which has made a gain, for example, will lead to a chargeable event and result in the issuing of a chargeable event certificate for use in preparing a tax return. Chargeable lifetime transfer (CLT) A transfer of value which is made by an individual and is not an exempt or potentially exempt transfer. Discretionary fund manager A fund manager who uses their own discretion on what assets to sell and buy, and when. Normally appointed by the client to act on their behalf. Disposal When you dispose of an asset, you might be selling it, giving it away, transferring or exchanging it for something else. For capital gains tax purposes, a disposal includes a ‘part-disposal’, which may be the disposal of part of an asset, or an interest or right in the whole or part of an asset. A disposal may give rise to a tax charge. Entry charge When a chargeable lifetime transfer (CLT) is created, an entry charge equivalent to half the rate payable on death (40% currently) is paid on the transfer of any value above the available nil-rate band (NRB). Previous CLTs will affect the amount of available NRB. Exit charge Where the entry charge or 10-yearly periodic charge has given rise to an actual payment of tax, an exit charge will be paid on any distributions made by the trustees out of the trust fund. The rate charged is dependent on the entry and 10-yearly periodic calculations but can never be greater than 6% of the trust fund. Nil-rate band Currently £325,000 (frozen until April 2026). Periodic charges Every ten years, the value of the trust will be assessed for tax with a maximum rate of 6%. OEICs (Open-Ended Investment Companies) and unit trusts These are types of investment schemes in which money from individual investors is pooled together into one fund, spread across a range of different investments (otherwise known as a ‘portfolio’) and managed by professional fund managers. OEICs and unit trusts operate under different legal structures but work in the same way. With OEICs you buy shares and with unit trusts you buy units. Potentially exempt transfer (PET) A gift made by an individual which is not immediately liable to IHT. It only becomes chargeable if the settlor dies within seven years of making the gift. If the settlor survives for seven years then the transfer is not chargeable. Qualifying interest in possession The name of the absolute entitlement to the trust income by beneficiaries of: a trust that was created prior to 22 March 2006 and hasn’t been changed to bring it into the relevant property regime; and immediate post death interest trusts. Realised gains (or losses) Gains can be either realised or unrealised. If you sell an asset at a profit, this is a realised gain. In other words it has been changed from a gain on paper into an actual gain. If the asset has gone up in value, but has not been sold, you have an unrealised gain. Such an asset can be described as ‘pregnant with gains’. It means that gains exist but have not yet been delivered. The same also applies to losses. Tax deducted at source This is the tax deducted on income before you receive it. Glossary of terms