The discounted gift trust 16 This is a chargeable lifetime transfer (CLT). If this amount plus any previous CLTs in the last seven years exceed the nil-rate band at the time, then the excess will be subject to an immediate 20% IHT charge. In this example the maximum charge could be £28,681 x 20% = £5,736. How the trust works in practice Mrs Wilkinson is aged 60, retired and in good health. She has an estate valued at £450,000 and she wishes to reduce her potential IHT liability. She has £100,000 available to invest, but also wants to take regular monthly withdrawals to supplement her pension, although she requires no further access to the investment. Upon her death she would like her growing family to benefit from the trust fund. Her financial adviser recommends that she invests in a Collective Investment Bond subject to a discounted gift trust – discretionary version. Case study 1 This shows how the discretionary version of the discounted gift trust works for a single settlor case. It also assumes that the available nil-rate band and exemptions have already been used. Settlor’s fund – the ‘discount’ The value of Mrs Wilkinson’s right to the requested regular monthly withdrawals is calculated taking account of her age and health, plus her level of withdrawals. We estimate the discount to be £71,319. Residual fund – the discounted gift This is Mrs Wilkinson’s investment less the discount. £100,000 - £71,319 = £28,681. This part of Mrs Wilkinson’s investment is immediately outside her estate for IHT purposes. Mrs Wilkinson invests £100,000 into the bond. The bond is transferred to a discounted gift trust – discretionary version. Mrs Wilkinson requests that she receives 5% of the investment (£5,000) each year, paid monthly. Any growth within the bond will be free from IHT except for any periodic or exit charges that may apply.