UK Inheritance Tax Planning – Discretionary Trusts
A Discretionary Trust is typically set up for the benefit of an individual’s children or grandchildren.
For a UK domiciled individual, the maximum that can be settled into a discretionary trust is £325,000 over any seven-year period. Any amounts settled above £325,000 will normally attract a 20% lifetime charge, usually making it unadvisable to do so.
By settling a discretionary trust now, it has the effect of starting the 7-year clock so that after 7 years, the settlement into the trust will not form part of an individual’s estate.
Discretionary trusts are extremely flexible meaning that the beneficiaries do not have to be specified at inception but can be kept relatively broad. For example, a trust can be settled for benefit of an individual’s children and future grandchildren. The beneficiaries of the trust can also be easily amended at any time once the trust is established.
The settlor of the trust can also be the trustee of the trust allowing them to maintain full control over the investment strategy of the assets settled as well as when distributions can be made.