BR Guide Second Edition

TRUST? SCENARIO: Jonathan is in his 80s and widowed. He set up a discretionary trust in 2016; having not transferred any other chargeable assets into trust in the preceding seven years, he gifted a total of £325,000 into trust. DISCRETIONARY TRUSTS Client in his 80s who has already gifted £325K (+annual gift allowances) into a discretionary trust, uses BR to shelter further funds 2009 - 2015 2016 2017 2018 2019 2020 2021 2022 NO GIFTS £325k TRUST £275k BR INVESTMENT * (NO CLT) (NO CLT) * BR investment falls outside of the charge to IHT JONATHAN’S TRANSACTIONS AN INVESTMENT HE MADE FIVE YEARS AGO HAS JUST MATURED AND HE NOW HAS AN ADDITIONAL £275,000 IN HIS ESTATE JONATHAN WANTS TO GIFT THE £275,000 INTO TRUST BUT HIS ADVISER POINTS OUT THERE WOULD BE A 20% CHARGE* HE INVESTS IN BR ASSETS IN ORDER FOR THE £275,000 TO BENEFIT FROM 100% IHT RELIEF + £275,000 *Any amount over the NRB will be deemed a chargeable lifetime transfer (CLT) subject to immediate charge to IHT. SETS UP A DISCRETIONARY TRUST, NOT HAVING TRANSFERRED ANY OTHER CHARGEABLE ASSETS IN THE LAST SEVEN YEARS £325,000 CASE STUDY 4 67 CASE STUDIES SCENARIO: Sally is 63 and is keen to put £600,000 cash, from the sale of her business a few months ago, into a discretionary trust for her grandchildren. DISCRETIONARY TRUSTS Business Sale Proceeds and efficiently funding a high value discretionary trust Sally’s previous business undertook BR activities for ten years SALLY SELLS THE BUSINESS AND WANTS TO PUT THE PROCEEDS INTO A TRUST She has already used her NRB by establishing other trusts and making personal gifts. Consequently, Sally would be liable for the chargeable lifetime transfer into trust: 20% charge on £600,000 = £120,000 IHT due BR Qualifying *If Sally’s company did not undertake a BR qualifying activity, she could still avoid the CLT charge by initially investing the £600,000 into a BR qualifying investment and after two years she could settle the BR qualifying investment into the discretionary trust. CASE STUDY 5 To avoid the charge, Sally reinvests the money into BR within three years of the sale of the business £600,000 INTO BR Now she can move assets into trust with Chargeable Lifetime Transfer at 0% thanks to BR qualification* £600,000 INTO TRUST POSSIBLE CHARGES If Sally dies within seven years and if the trustees disposed of the BR qualifying assets within seven years, the transfer into trust would fall back into charge and IHT would become payable on the amount by which the value transferred exceeded the NRB. If the trustees hold the BR qualifying investment for a two-year period and the asset itself continues to qualify for BR, no periodic or exit charges should arise. He places the BR qualifying assets into trust with no CLT charge. Total IHT saving = £110,000