When a settlor makes a transfer into a discretionary trust, that
is an immediately chargeable transfer. The transfer is chargeable
to inheritance tax (on the ‘loss to the estate’ basis)
at lifetime rates as set out from
IHTM14531.
These transfers are normally dealt with under a
‘lifetime’ reference. (
IHTM03091)
If the settlor dies within 7 years of making the transfer,
you must consider additional charges on the lifetime transfer. (
IHTM14571)
If the settlor retains an interest in the discretionary settlement as a potential beneficiary, they retain a benefit. This is a Gift With Reservation. ( IHTM42254)
Where a life tenant’s interest in an interest in possession (IIP) trust comes to an end and the assets immediately become subject to discretionary trust powers, that is an immediately chargeable transfer.
Different rules apply to special trusts. ( IHTM42801)
