Quilter 15 Death within seven years If Mr Owen dies within seven years of making the gift: his discounted gift of £13,225 will become chargeable to IHT at 40% as this is a potentially exempt transfer. It may be possible to reduce this if at least three years have passed, due to taper relief (see page 17). the withdrawals of £5,000 each year, payable monthly, will continue to be paid in full to Mrs Owen. his executors will negotiate with HMRC to determine the actual discount to be applied to the trust fund. If HMRC agrees with our calculations, then the full discount of £36,775 will all be free from IHT. If Mrs Owen dies within seven years of making the gift: her discounted gift of £11,759 will become chargeable to IHT at 40% as this is a potentially exempt transfer. It may be possible to reduce this if at least three years have passed, due to taper relief (see page 17). the withdrawals of £5,000 each year, payable monthly, will continue to be paid in full to Mr Owen. her executors will negotiate with HMRC to determine the actual discount to be applied to the trust fund. If HMRC agrees with our calculations, then the full discount of £38,241 will be free from IHT. If Mr and Mrs Owen had not applied for a discounted gift trust to reduce their IHT liability, their tax bills on the £100,000 invested could have been £20,000 (40% tax on their respective halves). By planning ahead, even if one of them dies within the first seven years, subject to HMRC’s agreement, Mr Owen will have saved his beneficiaries £14,710 (40% tax on the discount of £36,775) and Mrs Owen’s beneficiaries £15,297 (40% tax on the discount of £38,241). In addition there may be a further IHT saving as a result of taper relief on their respective discounted gifts. Death after seven years If either of Mr or Mrs Owen survives more than seven years after making the gift: the discounted gift of £13,225 (if only Mr Owen survives) or £11,759 (if only Mrs Owen survives), although originally a potentially exempt transfer, will now be completely free from IHT. If Mr and Mrs Owen both die more than seven years after making the gift: the total of the discounted gifts (£13,225 + £11,759 = £24,984), although originally potentially exempt transfers, will now be completely free from IHT. withdrawals will continue to be paid until the surviving spouse dies. Then the entire value of the trust fund can be distributed to their beneficiaries, ie their children. Through proactive planning, and assuming Mr and Mrs Owen both live for at least a further seven years, they will have saved their beneficiaries £40,000 (40% tax on the discounted gift of £100,000). In addition, any growth on this investment will also be free from IHT.