Quilter 9 The inheritance tax treatment of the Lifestyle Trust Lump Sum Payments into the Lifestyle Trust By transferring the bond into the trust, you are making a gift for inheritance tax (IHT) purposes. This gift will be treated as a ‘chargeable lifetime transfer’ (CLT) apart from any amount covered by an ‘exemption’. (See CLT explanation on page 11). Any CLT into the Lifestyle Trust which would cause you to exceed your available ‘nil-rate band’ must be reported to HM Revenue and Customs (HMRC) and tax at 20% (of the excess) is payable. In addition, all trusts now need to register with HMRC within 90 days of declaration. See page 11 for further details. When you receive the ‘entitlement’ There should be no IHT liability applicable when you receive your entitlement to the Policy Funds. This is because of the special design of the Lifestyle Trust. However, once you receive your entitlement to each Policy Fund, then its value will form part of your estate for IHT purposes. When you die: The original gift – You must survive seven years after transferring the bond for the CLT to be considered outside of your estate for IHT purposes. If you do not survive seven years then there may be further IHT to pay on death. For any additional contributions you choose to make to the bond, a new seven years will apply for each contribution. The future ‘entitlements’ – One of the conditions for receiving an entitlement to the Policy Funds is that you are alive on the date you become entitled. Therefore, if you are deceased, the value of the Policy Funds that you are yet to become entitled to will be outside your estate for IHT purposes and will remain within the trust. Previous ‘entitlements’ – Any Policy Funds you receive which have not been encashed and spent by the time you die, will be within your estate for IHT purposes. Discretionary trust taxation The Lifestyle Trust is a discretionary trust, a type of trust subject to certain IHT charges. The tax calculations for a discretionary trust can be complex, but in summary: A chargeable lifetime transfer charge may apply A ten year periodic charge may arise, every 10 years; and An exit charge may apply when benefits leave the trust. See glossary on page 11 for definitions of charges. Your financial adviser will be able to explain this in more detail.