An International Discounted Gift Scheme can be used with the International Portfolio Bond. The Scheme can provide your client with the opportunity to reduce their potential inheritance tax (IHT) liability by making a lifetime gift into a trust, which may be discounted for inheritance tax purposes. At the same time they retain the right to receive fixed regular payments at specified intervals.

• It provides the potential for an immediate reduction in the value of a person’s estate for IHT purposes.
• After seven years, the entire cash gift will be outside the person’s estate for IHT purposes.
• Any growth on the bond will immediately be outside the person’s estate and not liable for IHT.
• It provides the right to receive fixed regular payments at specified intervals for life or until the value of the bond is exhausted whichever comes first.
• The trust fund can pay any IHT or income tax charges that are attributable to the trust fund.
• It provides the ability to take withdrawals of up to 5% a year, of the original investment amount cumulatively (up to a maximum of 100% of the original investment) without any immediate income tax charge.  Full or partial surrenders by the Trustees to meet specified trust expenses will reduce the amount of regular payments that can be taken without incurring an immediate income tax charge.
• After the person’s death, the bond in the trust fund will be held for the benefit of the beneficiaries.

How does it work?

To make a cash gift your client must first complete a medical questionnaire, which is then used, in conjunction with a medical report obtained from their doctor, to establish their life expectancy.
Based on this information and the monetary amount of the fixed regular payments he or she wishes to receive, a discounted gift valuation is produced. Once your client has decided to proceed the next step is to set up the trust and for the trustees to apply for an International Portfolio Bond.  Further information about the Discounted Gift Scheme can be found in our Technical Guide   PDF: 168KB .

The value of the bond held within the trust can fall as well as rise and is not guaranteed.

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