Prudential launches 3 new discretionary trusts

With some experts predicting that as many as 3.3 million people in the UK will be liable for Inheritance Tax (IHT) by 2009, more and more people are falling into the IHT net.

The tax collected has also grown substantially – total IHT receipts are estimated at £3.56 billion for 2006/2007, representing a 21 per cent increase in just 2 years. This ever-expanding market offers real opportunities for providers and financial advisers to provide tailored solutions for their clients.

The Finance Act earlier this year introduced new rules for the taxation of trusts and as a result, bar a small number of exceptions, 'flexible' trusts set up after 21 March 2006 will be subject to the discretionary trust tax regime. This means they may be subject to various inheritance tax charges: an immediate charge on the gift into the trust; a periodic charge every 10 years; and an exit charge when any money is distributed from the trust to beneficiaries, whether in the donor’s lifetime or after their death.

Paul Kennedy, Taxation and Trusts Manager, Prudential UK said: “The introduction of the 2006 Finance Act does not by any means put an end to IHT planning. The need for good financial planning advice has never been more important to allow people to make informed decisions. Inheritance tax planning is now more complex – but that also means there is more opportunity, as clients will be increasingly in need of specialist advice to fit their own particular circumstances. To assist the advice process we are providing a range of complementary support materials, including advice flowcharts, guides to the new taxation regime and online calculators to assist tax calculations for discretionary gift, loan and discounted gift trusts.”

Added to the existing range of Prudential trusts (Absolute trusts and Excluded Property trust) are the following three discretionary trusts:

Discretionary Prudence Inheritance Bond

The Prudence Inheritance Bond is a discounted gift plan with a difference. Its unique design provides a 'natural' income for the life of the client with the capital passing to the chosen beneficiaries on death. There are also options to save the income for future use and some potentially valuable income tax planning benefits. The Prudence Inheritance Bond is also available in an absolute trust version.

Discretionary Gift Trust

A trust used to make an outright gift of an investment bond or for use with a life assurance policy designed to offset an inheritance tax bill. Prudential offers both regular and single premium life insurance solutions for those considering this approach to IHT planning. The Gift Trust is also available as an absolute trust.

Discretionary Loan Trust

This is an arrangement that allows the client to access the original capital, either as lump sums or as a regular income, while any growth on the capital is outside the estate. The client can vary the amounts and frequency of withdrawals, but cannot take out more than the original loan. The Loan Trust is also available as an absolute trust arrangement.

The advent of these new trusts ensures that each generic variant is available in both an absolute or discretionary form allowing advisers to select as appropriate for their clients. Additionally, we provide an Excluded Property Trust for foreign domiciliaries.

Paul Kennedy continued: “Inheritance tax has traditionally been seen as a tax on a wealthy minority. That is all changing. It is becoming a mainstream tax, but one for which you can plan. Investing a little time and thought now means you could reduce your tax bill or look to fund the liability. However, don't leave it until it's too late - some tax planning solutions need a number of years to maximise their effect and with the advent of the discretionary trust regime it may become necessary to attend to planning earlier and more often. Having launched these new trusts we are now examining further possible arrangements for the new year, but as we have done throughout this year, we will only go ahead when we are satisfied that we can provide both advisers and clients with the requisite clarity and certainty."