Quilter 17 Death within seven years If Mrs Wilkinson dies within seven years of making the gift: the discounted gift of £28,681 will become chargeable to IHT at 40%. If an entry charge was paid, for example the maximum £5,736 quoted above, this can be used as a credit to reduce the tax due. It may be possible to reduce this IHT charge further if at least three years have passed, due to taper relief (see page 14). withdrawals to pay Mrs Wilkinson cease and the entire value of the trust fund can be distributed to her family. the growth on the bond will not be subject to IHT – except if periodic or exit charges apply (see page 15). Mrs Wilkinson’s executors may need to negotiate with HM Revenue & Customs (HMRC) to determine the actual discount to be applied to the trust fund. If HMRC agrees with our calculations, then in Mrs Wilkinson’s case the full discount of £71,319 will all be free from IHT. If Mrs Wilkinson had not applied for a discounted gift trust to reduce her IHT liability, her tax bill could have been £40,000 (40% tax on the investment of £100,000). By planning ahead, even if she dies within the first seven years, Mrs Wilkinson, subject to HMRC’s agreement on the discount amount, will have reduced her beneficiaries’ IHT bill from £40,000 to £11,472 and saved them £28,528 (40% tax on the discount £71,319). There may be a further IHT saving as a result of taper relief on the discounted gift of £28,681. In addition, any growth on this investment will also be free from IHT. Death after seven years If Mrs Wilkinson dies more than seven years after making the gift: the discounted gift of £28,681, although originally a CLT, will now be completely free from IHT. withdrawals to pay to Mrs Wilkinson cease and the entire value of the trust fund can be distributed to her family at any future time. the trust fund will be liable to periodic and/or exit charges in future years. no refund would be payable on any entry or periodic IHT charge already paid. Through proactive planning, and assuming Mrs Wilkinson lives for at least a further seven years, she may have reduced her beneficiaries’ IHT bill from £40,000 (40% tax on the investment of £100,000) to £5,736 paid on entry into the trust. In addition, any growth on this investment will also be free from IHT.