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Where Taxpayers and Advisers Meet

Discounted Gift Trust - Capital or Income?

langtonbrow
Posts:64
Joined:Tue Mar 10, 2009 1:52 pm
Discounted Gift Trust - Capital or Income?

Postby langtonbrow » Sat Oct 21, 2023 10:56 am

Hello to the forum,

My mother has had a discounted gift trust for the last 10 years.

This provides an ongoing "distribution" of capital from the trust, presumably until my mother dies or the capital runs out.

As the distribution is capital, can it also be used as a regular gift within the HMRC rules on IHT exception for "gifting out of income"? My mother has been regularly gifting this sum for grandchildren's education. As it is capital, perhaps it is subject to the 7 year rule despite being "spare cash" which isn't depriving her of her accustomed lifestyle?

This seems a somewhat confused picture (to me anyway). Can anyone clarify the position.

with thanks
l.

AGoodman
Posts:1723
Joined:Fri May 16, 2014 3:47 pm

Re: Discounted Gift Trust - Capital or Income?

Postby AGoodman » Wed Oct 25, 2023 10:52 am

Those are capital receipts, rather than income, which is why I presume your mother does not have to declare them for income tax.

If you mother has other excess income that would cover the amount she is giving away (as well as her living expenses), her estate may still be able to claim the IHT exemption but I would need to look into it to confirm.

langtonbrow
Posts:64
Joined:Tue Mar 10, 2009 1:52 pm

Re: Discounted Gift Trust - Capital or Income?

Postby langtonbrow » Tue Nov 07, 2023 9:30 pm

Thank you for this.
Makes e wonder what the point of the DGT was. Simply shifting capital around from one initial pile to a slowly accumulating pile subject to the vagaries of investment income.
If these are capital receipts then in out case more gifts exist than "true" income + living expenses.
Hence I suppose the excess element could be treated as potentially exempt transfers, with a £3000 allowance per year. Sill liable to IHT beyond this threshold.

thank you.


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