DGIT

[Chesh62]

Good afternoon, and thank you in advance to anyone whom can assist.

I understand it from a conversation with a friend that his mother who is widowed and 62 has a total estate of £1,189,000 of which £500,000 is her property and the remainder cash. She has just recently put in place an offshore investment into a Capital Redemption Bond with DGIT of £520,000. He states that his Mum benefits from a discount on the amount invested of £239,000 which constitutes the bulk of her IHT liability and the remainder will fall out of her estate in 7 years? Her late husband passed away in November 2000 and on his death everything passed to his widow.

The questions asked are, does the £239,000 fall out of the estate immediately once the trust is in place?

Can she use her late husbands Nil Rate Band which wasn't used when he died?

I believe the investment is via Skandia International.

[tax_schmax]

The structure you have been discussing is called a Discounted Gift Scheme. This requires the settlor to take an income from the trusts. The value of this income over the settlors lifetime is the amount of discount. The theory being that the income will be received and spent, and thereby no be in the taxable estate. The extent to which this is true is debatable. Many people buy a discounted gift scheme because of the discount. Many do not need the income and this stays in the estate, and guess what, it gets taxed!

The discount is alluring. However, if the settlor is predicted to live seven years, the discount is of no use. The gift will be fully outside of the estate after seven years and therefore the discount was useless. Of course, a death can occur at any time. If a settlor is predicted to not survive seven years, they are unlikely to get a discount anyway.

The discount is available against the estate if your friends mother dies within 7 years. The discount is available and is loosely based upon the value of income she is expected to receive during her estimated lifetime. It is an immediate discount from the value of her estate.

She will be able to use her late husbands nil rate band.

[Chesh62]

Thank you, will relay comments.

Kind regards

Chesh62