eisman wrote:A couple of points:
It should be noted that undistributed income of a discretionary trust that has been retained for more than 5 years is now included with capital for the purpose of calculating inheritance tax 10 year anniversary charges arising on or after 6 April 2014. See HMRC manual IHTM42166.
Parky wrote:One thing I am seriously considering is to convert the Trust to an Interest in Possession trust..
to which Charlottesquare replied:The possible downside is the party entitled to the income may have the capital value of the trust, or part of the trust providing that income, as part of their estate for IHT purposes when they die.
Not so. Interest in possession trusts created after 22 March 2006 do not now form part of the estate of the life tenant for inheritance tax. They generally* fall (or, if created out of a discretionary trust, remain) within the relevant property regime and are therefore still subject to 10 year anniversary and exit charges.
* There are limited exceptions to this general rule:
- an immediate post-death interest (IPDI)
- a disabled person's trust
- a transitional serial interest
Apologies, of course you are correct, I was thinking about my father's IIP but that of course arose on his death whereas the question referred to lifetime creation.