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ACCA Strategic Professional · Advanced Taxation (UK) · Inheritance tax: transfers to and from trusts and property within trusts

Tomas is considering transferring shares in his family trading company into a discretionary trust rather than giving them outright to his son. Which of the following is a recognised inheritance tax planning point for a transfer to the trust?

A transfer into a discretionary trust is a chargeable lifetime transfer, not a PET. BPR may reduce its value to nil, but the trust is still subject to ten-year and exit charges, where reliefs may also apply. An outright gift would be a PET.

  1. AA transfer to the trust is a chargeable lifetime transfer, so with BPR the value may be nil, but the trust is within the ten-year and exit charge regimeCorrect
  2. BA transfer to the trust is a potentially exempt transfer, so no tax can ever arise
  3. CA transfer to the trust is exempt provided the trust is for the benefit of Tomas's spouse only
  4. DThe trust avoids the seven-year rule, so there is no need to consider survival

Explanation

A transfer to a discretionary trust is a chargeable lifetime transfer, not a potentially exempt transfer. BPR may reduce its value to nil, but the trust is a relevant property trust, so it is subject to ten-year and exit charges, although BPR and APR may also reduce these. An outright gift to the son would be a PET, which depends on surviving seven years.

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