Using ITS to establish a Discretionary Trust
Helen is in her mid-60s with an estate worth more than £6m.
She is a widow and has previously made gifts into discretionary trusts (for her children) utilising the total nil rate band allowance of £325,000 which was completed just over 2 years ago. She has recently received a large inheritance and is looking to place a further £1m into discretionary trust arrangements with the intention of:
- Protect more of her capital from tax and IHT
- Putting more into trust
- Control of the funds in the trust of her capital
- Minimise investment risk
Her financial adviser discussed the option of placing more funds directly into a discretionary trust, but Helen did not like paying 20% (£200,000) for the privilege of doing so.
Helen’s financial adviser also talked about the option of arranging an asset backed business relief solution to run for a minimum of 2 years which then can be placed into a discretionary trust which would be a zero Chargeable Lifetime Transfer and therefore not incur the £200,000 charge.
After further discussion they settled on using an Inheritance Tax Service as this gave Helen:
- Control of her capital
- The ability to wrap into a Discretionary Trust after two years
- An investment into a wide range of business activities
- To have the whole value at a zero IHT rate of tax after two years
Helen’s adviser talked about the method that she considers when wrapping this Business Relief arrangement into a Trust after 2 years. The adviser recommended that Helen gave instructions to the Trustees to hold the Business Relief unchanged in the Trust for either 7 years to protect against IHT in the event of Helen dying in the first 7 years or for 10 years to mitigate the associated periodic charge. This was all on the basis that this instruction would guide the trustees to take the settlor’s wishes into account before reverting to the needs of the beneficiaries.
By Helen taking the route of investing into an ITS to be wrapped into a discretionary trust, then she has achieved:
- A reduction in Helen’s chargeable lifetime transfer saving of £200,000
- Helen’s IHT plan achieved, albeit by a different method
- Helen’s IHT saving of up to £400,000
- Possible periodic charge/exit charge saving
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This document dated 7th December 2022 is intended for retail investors and their advisers and has been approved and issued as a financial promotion under the Financial Services and Markets Act 2000 by Stellar Asset Management Limited (‘Stellar’). This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Stellar does not offer investment or tax advice or make recommendations regarding investments. Stellar is authorised and regulated by the Financial Conduct Authority (Firm reference No. 474710). Registered in England No. 06381679. Registered office: 20 Chapel Street, Liverpool L3 9AG.