Placing Onshore Bond in DGT, limited to 5%?

LilyJ91

Hi all,

If a couple have an onshore bond, which they have held for 10 years, I understand this would allow them to withdraw 50% of the original investment, tax deferred, because they have built up 10 years worth of 5% tax-deferred withdrawals. For example, if £60,000 had been originally invested into the bond, £30,000 could be withdrawn with no immediate tax liability.

I wondered if anyone could advise me on whether the 50% would still be available, tax-deferred, if the onshore bond was to be placed into a Discounted Gift Trust? As far as I know DGTs are limited to 5% withdrawals per annum but if the onshore bond is pre-existing, I wasn't sure whether the 50% can still be taken advantage of.

Thank you in advance! Lily x

LilyJ91

Any ideas MSE guys? Thanks so much!! x

Delburn

I will try and give some thoughts, but it is not very clear what you are asking.
This is a specialist area and I would think you would almost certainly need to get advice from an IFA and/or a STEP qualified solicitor before a product provider would be happy with setting up a DGT.

Typically a DGT would be set up with a defined income stream being paid back to the person making the gift into the trust. The discount is the expected value of those payments.

If the trust was written allowing the person making the gift to just say they want 50% of the gift back, then the gift would probably be invalid, or there would be adverse tax consequences.

The couple could consider withdrawing the 50% prior to making the gift.

Also, I do not know whether the existing onshore bond provider would be set up to facilitate the gifting of an existing bond into a DGT. They might require the existing bond to be surrendered, or require the owners to make their own legal arrangements if they wanted to gift the existing bond.

I would think theoretically the defined income stream from the DGT could be higher than 5%. However, there may be adverse tax consequences from doing this and a product provider may not allow a product to be set up on this basis.

xylophone

https://techzone.adviserzone.com/anon/public/iht-est-plan/Tech-guide-discounted-gift

Trust Creation
The trust is typically established by the settlor making a cash gift to the trustees. It isn't normally possible to use an existing bond or other investment to create the trust - these will generally need to be encashed and the proceeds used to establish the discounted gift trust.

But note the "normally" and "generally".... Check with the bond provider?