Quilter 19 Death within seven years If Mr Povey dies within seven years of making the gift: his discounted gift of £13,225 will become chargeable to IHT at 40% but this is reduced by the credit paid on entry. It may be possible to reduce this if at least three years have passed due to taper relief (see page 14). the withdrawals of £5,000 each year, payable monthly, will continue to be paid in full to Mrs Povey. his executors will 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 the full discount of £36,775 will be free from IHT. If Mrs Povey dies within seven years of making the gift: her discounted gift of £11,759 will become chargeable to IHT at 40% but this is reduced by the credit paid on entry. It may be possible to reduce this if at least three years have passed due to taper relief (see page 14). the withdrawals of £5,000 each year, payable monthly, will continue to be paid in full to Mr Povey. 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 Povey 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 Povey will have saved his beneficiaries £14,710 (40% tax on the discount of £36,775) and Mrs Povey’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 Mr or Mrs Povey survives more than seven years after making the gift: the discounted gift of £13,225 (if only Mr Povey survives) or £11,759 (if only Mrs Povey survives), although originally a CLT, will now have no further IHT liability. If Mr and Mrs Povey both die more than seven years after making the gift: the total of the discounted gifts (£13,225 + £11,759 = £24,984), although originally CLTs, 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. Through proactive planning, and assuming Mr and Mrs Povey both live for at least a further seven years, they will have reduced their joint IHT bill on the £100,000 investment from £40,000 (40% tax on the investment of £100,000) to £4,997 (£13,225 + £11,759 x 20% = £4,997) and saved £35,003. In addition, any growth on this investment will also be free from IHT. They wish to reduce their potential IHT liability and have £100,000 available to invest.