Inheritance Tax IHT400 / IHT403 submission - Reserved Interest Trust

peternette

My father has passed and entered into a Reserved Interest Trust in 2006, the beneficiaries being his children. He relinquished ownership of the investment (to the Trust), but was nevertheless able to withdraw 5% of the capital per annum (effectively tax free), which he did.
Does this mean IHT403 needs to be completed and if so, I am unsure about how the following questions should be answered:

8) Did the deceased transfer any assets, after 18 March 1986, to any individual, trust, company or other organisation where the deceased continued to have use and enjoyment,

or a right or benefit, from the gifted asset?  

9) Did the deceased transfer any assets, after 18 March 1986, to any individual, trust, company or other organisation where the person or organisation receiving the asset

did not take full possession of them? 

Any wisdom appreciated. Thanks in anticipation.

Peter 

Keep_pedalling

I have not heard of a reserved IT, but it does sound like a discounted gift trust.

https://www.crowe.com/uk/crowefinancialplanning/insights/discounted-gift-trusts

I don’t have any experience of these do I will leave any answers to others.

peternette

Ah - and a lightening fast response from the person who I had hoped would respond!  Thank you!

Yes I believe they are one and the same. Indeed a further Google search asking if they are the same resulted in an AI generated answer as follows:

"Yes, a "reserved interest trust" is essentially the same as a "discounted gift trust," as both structures allow the settlor to transfer assets to a trust while retaining a defined right to receive regular income payments, effectively "discounting" the value of the gift for inheritance tax purposes because the retained right is clearly carved out and not considered a "gift with reservation of benefit."

Which helpfully actually answers my question!  I hope this may also be of assistance to others.

Thanks again Keep_pedalling.

poseidon1

peternette said:

My father has passed and entered into a Reserved Interest Trust in 2006, the beneficiaries being his children. He relinquished ownership of the investment (to the Trust), but was nevertheless able to withdraw 5% of the capital per annum (effectively tax free), which he did.
Does this mean IHT403 needs to be completed and if so, I am unsure about how the following questions should be answered:

8) Did the deceased transfer any assets, after 18 March 1986, to any individual, trust, company or other organisation where the deceased continued to have use and enjoyment,

or a right or benefit, from the gifted asset?  

9) Did the deceased transfer any assets, after 18 March 1986, to any individual, trust, company or other organisation where the person or organisation receiving the asset

did not take full possession of them? 

Any wisdom appreciated. Thanks in anticipation.

Peter 

keep_pedalling mentioned the possibility of the investment bond tax structure possibly being a discounted gift trust ( DGT ) . However the term 'reserved benefit trust' could also apply to 'gift and loan trusts' which have similarities in providing a benefit to the settlor ( your father ) albeit by way of a repayable loan

However the date he gifted into  trust would needed to have been prior to 22 March 2006, otherwise there is a distinct possibility it was caught by  the 'relevant property ' tax regime that imposes a 10 year anniversary iht reporting regime that could give rise to an iht charge on the part of trust fund attributable to rights of beneficiary children - see link to HMRC briefing note below with regard to SGTs in this regard.


https://www.gov.uk/government/publications/revenue-and-customs-brief-22-2013-discounted-gift-schemes/revenue-and-customs-brief-22-2013-discounted-gift-schemes--2#:~:text=unless otherwise stated.-,The 10 Year Anniversary Charge,the relevant property to HMRC .

So a response as to the date of the trust is necessary to determine if the trustees of the arrangement have already missed an iht reporting event in 2016 and possible a tax charge at that time.

As to your specific question.  The point of DGTs ( if this is what it is)  is that they are in two parts, the reserved benefit belongs to the settlor outright, whilst the remaining  trust fund accrues outside the settlor's estate and subject to surviving 7 years is wholly outside their estate on death. 
Since the right to the 5% ( income) dies with the settlor it has no value on his death - see guidance note below

https://techzone.abrdn.com/public/iht-est-plan/Tech-guide-discounted-gift#:~:text=The value of the discounted,no IHT will be payable.


 Therefore for the purposes of  IHT 403  the answers to questions 8) and 9 )  are 'no' in each case.

However as indicated above the trust itself may already have had an iht reporting event in 2016, and if the trust is now being wound up in favour of the children there maybe an trust exit iht return also in point on date of winding up. The iht return required in each case is IHT 100.

A brief perusal of the links above, should hopefully convince you that the complexities of these forms of trust are way beyond your own capabilities and will need the services of a STEP qualified accountant to help navigate any outstanding iht compliance matters, including reporting the original creation of the trust if this occurred after 22 March 2006.

Finally, if the trust was created prior to 22 March 2006 , pretty much all the complexities mentioned above may fall away, as long as the children's benefit from the trust was defined as fixed 'interests in possession ' rather  than wholly discretionary. Providing an extract of the trust wording related to the children's benefit should settle this question.