Outright gift or trust?

[leighc]

My mother has an Open Ended Investment Co fund (amongst other investments). She is unlikely to need income or capital from this and is considering transferring the fund to me as a PET, naturally hoping she will survive at least 7 years and thus remove this from her estate for IHT purposes. However, is there any advantage to putting this into some sort of trust instead?
Thanks
Leigh

[bob.fraser@towrylaw.]

The only advantages of a trust would if if:
a. She wished to have some control over the capital in the trust.
b. She wished to draw a regular income from the gift, in which case a discounted gift trust would be appropriate.
c. She was undecided about whom to give the money to at the moment, and wished to be able to make this decision at a later date.
d. There would be a capital gains tax liability on her on disposing of the investment.

If these factors don't apply, then an absolute gift would be be simplest way to remove the capital from her estate.

Bob Fraser
Chartered Financial Planner

[leighc]

Thank you Bob. Nice & succinct!
Regards
Leigh

[maths]

May not be an issue, but gift will in principle precipitate for your mother a capital gains tax liability.

Using a trust could defer the liability.

As always, all facts need to be considered in the light of overall objectves.

[Wealth Protector]

LeighC doesn't say how much £'s are involved and the overall value of Mum's estate. If of any reasonable size surely an holistic approach is called for here since LeighC infers Mum is fairly well off otherwsie why would she be wanted to remmove its value from her estate and thence IHT? In any event Gift or no Gift if the sum is significant then LeighC will merely end up with a tax problem himself one way or another. Why not nip the problem in the bud and use a Minerva Estate Protection Trust or Minerva Business Asset Plan which moves the assets offshore into a suitable Trust with LeighC (and Mum if she has a mind to afterall) written into the deed as able to benefit therefrom as required.

[leighc]

Thank you all. The total estate value would be around £1.5 million of which £500,000 is my mother's house, around £200,000 is covered under a DoV on my late father's Will & the rest investments. The OEIC is currently valued at around £210,000. I did not realise that my mother could incur a CGT liability by gifting this to me as it would be transferred into my name rather than realised. Forgive my ignorance!
Leigh

[bob.fraser@towrylaw.]

So actually your mother's estate is worth £700,000+.
This suggests that a more comprehensive planning strategy may be needed, and the OEICs may have a role here.

However, if the OEICs are the only issue that she wants to address, then it would be possible (if your mother has not made gifts into discretionary trusts in the past 7 years) for her to gift the OEIC into a discretionary trust, hold over the capital gain, and then wind up the trust after 3 months in your favour (again holding over the capital gain). In this way the OEIC is potentially out of her estate if she survives 7 years, and she (but not you)has avoided CGT of the gift.

It is the disposal of an asset that gives rise to a potential CGT liability, not just the sale of an asset.

Beware aggressive tax planning - its a red rag to HMRC.

If I can help further in your planning, just contact me through my email address.

Bob Fraser
Chartered Financial Planner

[Wealth Protector]

I agree with Bob Fraser Leighc, there is clearly more that needs considering than just Mum's OEIC as I suspected.

The trouble with inheritances and most mitigating methods is that all they do is pospone the tax problem to the next generation.

There is a way around the problem though and that is to convert Mum's assets from personal ownership using Section 162 TCGA 1992 (no gain, no loss, no tax) and then use Section 239 to move the assets into a particluar Jersey Trust (again, no gain, no loss, no tax).

That way Mum's assets are all immediately tax protected so no inconvenient 7 year taper period. The assets are available as per the trust deed specified by her at the outset and then available after her death again as the deed specifies in perpetuity, still of course outside of taxation.

The assets can interact with the outside world just as they would ordinarly but without the inconvenience of taxation ever again. So the trust can sell assets and buy new ones with the proceeds, or give loans or even raise loans against the asset value....

If you would like to talk this through in more detail then by all measn contact me.

Rex Ashcroft
Director
Wealth Protection International Limited
info@wealthprotect.co.uk
+44 1263 821906

[maths]

How does section 162 apply given that none of the assets of leighc appear to be business assets?

[bob.fraser@towrylaw.]

As a ball park, what would the total cost of this scheme cost a client based on, say, £500,000.

Bob Fraser