What does the Discounted Gift Trust do?

Passing on wealth to your chosen beneficiaries - and ensuring that it doesn't fall into the hands of the Revenue -is a key objective for many people. Unfortunately, the inheritance tax rules are designed, quite intentionally, to make this difficult to achieve.

Inheritance tax is a tax on the passing of wealth. Therefore, the smaller your estate on death, the smaller the tax bill. So why not simply give away cash or investments to children or grandchildren, in order to reduce the tax burden?

The answer is that you probably want - or need - to draw income from your investments in order to maintain your standard of living. Making gifts and continuing to benefit from what you gave away will result in the gift being treated as subject to a "reservation of benefit" - which means that the gifted assets are still treated as part of your estate. In other words, nothing is achieved.

The Discounted Gift Trust allows you to make a tax-effective gift whilst retaining the right to receive regular cash payments for life. Through careful planning and by using a specially-drafted trust deed, it achieves this without any reservation of benefit problems.