Fixed Discounted Gift and Income Trust

For Investment Bond

The Discounted Gift and Income Trust (creating fixed trust interests) is established on an absolute trust basis. This allows your clients to take action to immediately reduce their potential inheritance tax (IHT) liability (subject to underwriting) while retaining the right to a fixed income for life. Because the value of this income right will normally have no value on death, the value of the settlor's estate is immediately reduced for IHT purposes, achieving a discounted gift.

Key benefits

  • Reduces potential IHT liability (subject to underwriting).
  • Provides a fixed income throughout your client’s lifetime.
  • 3 different types of underwriting available.
  • Joint or single settlements can be made.
  • Not suitable for clients who require flexibility and control.
  • Offered in conjunction with new and existing investments into our Investment Bond.

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Key details

Eligibility

 

  • The settlor(s) must be 18 years or over and of full mental capacity.
  • We will not normally accept a trust created under a power of attorney.
  • Minimum investment of £30,000 into the Investment Bond
Features
  • Ability to create a fixed (absolute) trust (ie creating fixed trust interests).
  • Trustees hold the trust fund as nominees for your client's chosen beneficiary or beneficiaries, who are absolutely entitled to their specified share(s) of the trust fund, subject to the settlor's overriding right to a fixed income for life.
  • Joint or single settlements available.
  • The initial trust capital will normally be provided by an investment into our Investment Bond
  • On setting up the trust the settlor will be treated as having made a potentially exempt transfer (PET) for IHT purposes. This is discounted by the value of the settlor's retained right to income for life (subject to underwriting).
Inheritance tax (IHT)
  • The value of the potentially exempt transfer is the value of the investment less the value of the settlor's retained right to income. This is actuarially calculated at outset, provided full in advance underwriting or concurrent underwriting is requested. If a discount is available, this normally provides an immediate saving in IHT if the client dies within 7 years of establishing the trust.
IHT reporting
  • There is no requirement for IHT reporting as the Discounted Gift and Income Trust (creating fixed trust interests) is not a relevant property trust.

Key documents

Trust deed (PDF)

Client brochure (PDF)

Underwriting/health questionnaire (PDF)

Important notes for applications (PDF)

See all our trust documents in one place, including forms, guides and brochures.

Other literature

Other information you need

  • The Discounted Gift and Income Trust (creating fixed trust interests) may be suitable for clients:
    • whose estate is likely to be liable to IHT on death, even if maximum use is made of exemptions, reliefs and the nil rate band
    • who have a lump sum available for investment
    • who require an income from their investment for life, but are willing to forego all other access to the invested funds
    • who are willing to make a decision now as to who should benefit from the invested amount and accept they will not be able to change their decision later
    • who are content that adult beneficiaries could choose to direct the trustees how the funds should be invested and may call for payment of the trust fund at any time (subject to the settlor's entitlement).

    Not for your client?

    Take a look at our other trust options

    • The Discounted Gift and Income Trust is designed for clients who wish to mitigate their estate's potential IHT liability, but require a fixed income for life.
    • Subject to underwriting, the retained right to income may lead to a discount on the value transferred into trust giving an immediate reduction in the potential IHT liability.
    • In addition, because it is established on an absolute basis there is no lifetime IHT payable on the value of the gift regardless of the amount transferred.
  • The Discounted Gift and Income Trust is designed for use with the  Investment Bond

    View fund factsheets, fund prices and fund performance

    • The Discounted Gift and Income Trust (creating fixed trust interests) is not subject to any charges.
    • Please see the Investment Bond for charges in relation to the bond.

    Important notice

    Please note that charges, terms and limits may change. We may change the selection of funds that we make available. There may be restrictions on the amount that can be invested in certain funds. Please contact us for details of any restrictions that apply. Tax treatment depends on the individual circumstances of your client and may be subject to change in the future.

  • Before you apply

    Before proceeding to the application stage you should ensure that your client wishes to set up a Discounted Gift and Income Trust (creating fixed trust interests), which is on an absolute basis.

    Should they wish to establish the trust on a discretionary basis, please look at our Flexible Discounted Gift and Income Trust

    Please also ensure your client has read the important notes for applications (PDF)

    The application stages

    Step 1
    • For full in-advance underwriting, a completed health questionnaire should first be submitted (see postal details in step 3).
    • Once this has been received a projected discount will be provided where possible. If the projected discount is acceptable the application stage moves to stage 2.
    Step 2

    The following items should accompany the application:

    • confirmation of verification of identity of the settlor(s) and all additional trustees
    • copy of illustration
    • cheque for investment amount
    • payable to ‘Scottish Widows Limited – [settlor’s name]’.
    Step 3

    Send your applications by post to:

    Scottish Widows
    PO Box 28117
    15 Dalkeith Road
    Edinburgh
    EH16 9AN

    Step 4

    Policy documents will be issued to the trustees.

    This trust is also offered on a concurrent/no underwriting basis. Please speak to your usual sales contact if you wish to proceed on either of these options.

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