Flexible Discounted Gift & Income Trust

For Investment Bond

The Flexible Discounted Gift and Income Trust enables your client to make a gift for inheritance tax (IHT) purposes while retaining the right to a fixed income for his or her lifetime. 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.
  • Three different types of underwriting available.
  • Joint or single settlements can be made.
  • Suitable for clients who require flexibility and control.
  • Offered in conjunction with new or 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
  • Established on a discretionary trust basis.
  • Trustees hold the trust fund on discretionary trust for a wide range of potential beneficiaries, 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 chargeable lifetime transfer for IHT purposes, which 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 chargeable lifetime transfer is the value of the investment less the value of the settlor's retained right to income (ie the discount). 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 your client dies within 7 years of establishing the trust.
  • If the value of the transfer after applying the discount is in excess of the settlor's available nil-rate band, IHT will be payable on the excess at the lifetime rate. Given the structure of the plan, IHT must be paid by the settlor at an effective rate of 25%.
  • Property held within the Discounted Gift and Income Trust is relevant property for IHT purposes.
  • IHT charges may apply if property is transferred out of the trust to a beneficiary.
Income
  • The level income requirement must be established at outset and cannot be amended later.
  • The settlor may defer, waive or postpone the right to receive income. However, this is likely to reduce the IHT effectiveness of the planning.
  • The income is funded by capital withdrawals from the investment bond held as a trust asset. The withdrawals are subject to income tax under the chargeable event gains regime, although any liability to income tax can normally be deferred until a chargeable event arises and a gain occurs.
IHT reporting
  • Chargeable lifetime transfers may need to be reported to HM Revenue & Customs (HMRC) on form IHT100 even if no IHT is actually payable.
  • IHT100 reporting requirements and IHT charges may also apply every 10 years (periodic charges) or when trust capital is paid to beneficiaries (exit charges).

Key documents

Trust deed (PDF)

Client brochure (PDF)

Important notes for applications (PDF)

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Other information you need

  • The Flexible Discounted Gift and Income Trust, created on a discretionary trust basis, 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, which is, or will be, within their available IHT nil-rate band when the discount is applied
    • who require an income from their investment for life and are willing to forego all other access to the invested funds
    • who want flexibility and an element of control over the ultimate distribution of capital
    • who are prepared to accept the reporting obligations and the possibility of tax charges under the relevant property regime.

    Not for your client?

    Take a look at our other trust options

    • The Flexible Discounted Gift and Income Trust is designed for clients who wish to mitigate their estate's potential IHT liability, and 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.
  • The Flexible Discounted Gift and Income Trust is designed for use with the Investment Bond

    View fund factsheets, fund prices and fund performance

    • The Flexible Discounted Gift and Income Trust 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 Flexible Discounted Gift and Income Trust, which is on a discretionary basis.

    Should they wish to establish the trust on an absolute basis, please look at our Discounted Gift and Income Trust (creating fixed trust interests)

    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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