A settlor transfers £500,000 into a new discretionary trust during his lifetime. The nil rate band is £325,000 and he has made no prior transfers. What is the inheritance tax position at the point of transfer?
Answer and explanation
Correct answer: D. It is a chargeable lifetime transfer, with lifetime tax at 20 percent on the amount over the nil rate band
- Step 1: Transfers into discretionary trusts are chargeable lifetime transfers.
- Step 2: The amount over the nil rate band is £175,000, and 20 percent of that is £35,000 if the trust bears the tax.
Answer
It is a chargeable lifetime transfer, with lifetime tax at 20 percent on the amount over the nil rate band.
Why not the others: PET treatment applies to gifts to individuals; trusts do not receive a blanket exemption; 40 percent is the death rate.
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