Discretionary Trust Taxation
The rules concerning interest in possession, power of appointment trusts were changed in the budget of 22 March 2006.
Due to these changes, a Discretionary Trust is now normally the best trust for 'family' life cover.
This section looks at the Inheritance Tax treatment of a life policy placed in a Discretionary Trust.
Claim on policy in the first 10 years
Policy has a value on the 10th anniversary
Poor health on the 10th anniversary
Exit charge after the 10th anniversary
All of this information assumes that a policy will never acquire any 'savings' or 'cash surrender' value, and that it would only ever have a value in the event of a claim for the sum assured on the policy, for, example, in the event of claim for death, critical illness or terminal illness.
It also assumes that there is no Chargeable Lifetime Transfer when the policy is set-up and placed into trust, and that the premiums are covered by one of the available exemptions. This means that there was no tax charged when the trust was set up.
Pre-22 March 2006 Interest in Possession trust:
It is worth noting that any changes made to the default beneficiaries of an interest in possession, power of appointment trust , originally set-up prior to 22 March 2006, will bring the way in which that trust is taxed into these 'discretionary trust' rules., so please seek advice before making any changes.
