Bigger Discounted Gift Trust Discounts

Published / Last Updated on 13/10/2016

Bigger Discounted Gift Trust Discounts.Bigger Discounted Gift Trust Discounts

HMRC confirmed that with effect from the 1 December 2013, annuity interest rate assumptions for inheritance tax planning using discounted gift trusts was reduced from 5.25% to 4.5%.

This follows the adoption of gender neutral financial services underwriting that became law in the UK 11 months earlier.

What does this mean for discounted gift trusts?

A discounted gift trust is an investment that you gift to a trust where the actual investment is held in trust for your loved ones.

You are then allowed to receive an income/annuity for the rest if your life.  Life expectancy is calculated based upon your age and health and thus an assumption of how much income you will receive over the period until you die.  This is then “discounted” off the value of the total amount invested for inheritance tax purposes.

In short, overnight, you reduce the value of your investments for inheritance tax but you still receive the income.

The New Annuity Assumption

By HMRC reducing the assumed annuity rate assumption, it means that the “virtual cost” of this income element to you is more expensive.  This is not bad news, this is good news, it actually means that discounted allowed for inheritance tax calculation is bigger i.e. you save more inheritance tax whilst not technically reducing your income or the value of the investment left over as an inheritance for you family.

For more on inheritance tax saving and discounted gift trusts, contact us.

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