Your guide to UK inheritance tax and trusts 16 Discounted gift schemes These schemes involve an investment into a whole life assurance bond or capital redemption bond written in a trust. The trust allows you a right to ‘income’ in the form of withdrawals during your lifetime or until the bond comes to an end. The value of all these future withdrawals is called the ‘discount’. It is calculated by taking into account such factors as your age, state of health and withdrawals required. The discount provided is an estimated discount; the actual discount needs to be agreed with HM Revenue & Customs upon your death. The significance of the discount is that your estate should immediately be reduced by the value of the discount. Quilter offers two Discounted Gift Trust arrangements. The Bare version creates a PET and the Discretionary version * creates a CLT. Both schemes give you a right to a chosen level of withdrawals, and any growth made on the underlying investment falls immediately outside your estate for IHT purposes. Should you die within seven years of creating a trust, your IHT liability can be reduced. After three years any further liability can be reduced; this is known as taper relief (as described on page 14). After seven years your assets would fall outside your estate and be completely free of IHT – leaving your beneficiaries to benefit fully from the trust fund, with no IHT bill to pay. Please speak to your financial adviser for more information about any of Quilter’s trust arrangements. Loan schemes Under a Loan Trust scheme, you appoint trustees and make a loan to them. The trustees use this loan to invest in a single premium whole life assurance bond or capital redemption bond from which you can request withdrawals in the form of loan repayments. This loan amount forms part of the trust fund and is repayable to you on demand, giving you flexibility for the future. This can be repaid to you on an ad hoc basis or as regular repayments. Other advantages with this type of scheme are as follows: All growth on the trust fund is outside your estate from day one and therefore free from IHT. However, periodic and exit charges may apply in the future where a discretionary trust is used. As the interest-free loan is repayable on demand, it is not treated as a gift, although any outstanding sum due on death will form part of your estate. Assuming loan repayments are spent, your taxable estate should gradually reduce. Sustaining your standard of living There are many types of trust designed to provide an ‘income’ through the use of regular withdrawals of capital. Quilter’s single premium schemes are outlined below and further information can be requested from your financial adviser.