ACCA考试科目 P7 IHT on CLT’s

ACCA考试科目 P7 IHT on CLT’s


As I understand it aCLT is a gift made to a discretionary trust during lifetime which is assessedfor IHT. The IHT on the gift after reliefs when paid by the donor is 25% butwhen paid by the trust it is only 20%.

Could explainthe reason for the different rates paid by donor and a trust in this situation?

yousee whenever a gift is made into a disc trust IHT of 20% is payable on thespot. now this can be paid either by the donor or the donee (I’m sure you knowthe diff b/w the two). Anyways when the donee, in this case the trust, pays the IHT, a direct 20%charge is applied to the gift. simples!
As far as the donor isconcerned, if he/she chooses to pay the IHT, then the gift would have to be grossed up before the IHT is charged! it’snasty calculations but the end result is the same! and we gross up by 100/80.
I’ll show you an example. say i want to give 100k to a disc trust and i want topay the IHT. According to HMRC, IHT will not be calculated on 100k, but on the gross figure of 125k (100 x100/80) . So that would bean IHT of 25k (125k x 20%). From our estate, 125k is deducted and not 100k sothis process is known as grossing up.
now regarding the 25% rate. in order to find the IHT on a gift to disc trustwhere the IHT is paid by the donor, use this rate! 100k x 25% = 25k! it’s kind of ashortcut but this process gets complicated once the nil rate band comes intoplay! but that’s a different story!