gift and loan schemes after twenty years

[kathleen]

what happens to a gift and loan scheme that was set up twenty years ago - is that a full term or can it be left to withdraw 5%, I am now 80 and have been advised to transfer this to a discounted gift plan all of which would be over the IHT treshhold, my health is not too good.

[Arnold Aaron]

"have been advised to transfer this to a discounted gift plan"..."my health is not too good."

Oh deary me! - Discounted gift plan DGP is not a good idea if you are not in good health. Also DGP could trigger a tax charge if the amount is above the nil rate band (after taking into account any relevant transfers you may have made in the last 7 years, under the recent proposed changes to tax law)

As regards the gift and loan scheme, if you have any unused 5% withdrawals you may still utilise them, up to a maximum of 100% of what you loaned to the trust, i.e. actually invested.


No doubt others will offer their views on this too.

Arnold Aaron
Investment and Inheritance Tax Planner
www.arnoldaaron.co.uk

[bob.fraser@towrylaw.]

Aaron is absolutely right to caution about the discounted gift plan, since this predicates an expected longevity of 7 years. These plans have also fallen foul of the recent Finance Bill, and my own advice is to delay implementing any new ones until clarity has been provided by the Finance Act once it receives Royal Assent.

Bear in mind that it is only the capital lent to the trust that is still inside your estate. Any growth in excess of your withdrawals should be safely in trust.

If you do not need all the remaining capital, or withdrawals from it, then you could simply make an absolute gift of if. This would still be a potentially exempt transfer, and you would need to survive 7 years for all of it to be free from IHT. However, this would also stop the growth accumulating in your estate.

If the gift were in excess of the nil rate band, then the amount over the nil rate band would benefit from IHT taper relief after 3 years.

If you do need access to the capital, and you judge that your health makes the 7 year survival unlikely, then you could consider investing in a portfolio of qualifying AIM shares. This would provide 100% IHT exemption on the full amount after 2 years ownership. There are details under the Tax Investment heading to the right of this screen.

Bob Fraser
Chartered Financial Planner
02825638563 or 07769880476