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Discretionary Trusts

For OEICs

Designed for Scottish Widows OEICs. Your client gives up all future access to the investment to reduce the potential inheritance tax. But they retain some control in deciding who benefits and when.

Key benefits

  • For use with Scottish Widows OEICs.
  • Discretionary trust for wide class of beneficiaries.
  • Enables the client to mitigate IHT liability by making an outright lifetime gift.
  • Client retains some control over who will ultimately benefit as settlor and trustee.
  • Can accommodate both new and existing OEIC investments.
  • Joint or single settlements can be made.

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Key details

Key details  

Eligibility
  • The settlor(s) must be 18 years or over and of full mental capacity.
  • We will not normally accept trusts created under a power of attorney.
  • Joint or single settlements available.
  • Only for use in conjunction with Scottish Widows OEICs.

Features
  • Discretionary trust for joint or single settlors.
  • The initial trust capital will usually be provided by investment into a Scottish Widows OEIC.
  • Can accommodate existing investments.
  • Creates an irrevocable, outright gift in favour of a wide class of beneficiaries excluding both the settlor and the settlor's spouse.

Inheritance tax (IHT)
  • On setting up the trust with a lump sum investment the settlor will be treated as having made a chargeable lifetime transfer for inheritance tax purposes.
  • Regular investments will usually be classified as exempt gifts, for example, if made out of surplus income but will otherwise be chargeable.
  • No inheritance tax payable on creation of the trust if value of gift below settlor's available nil rate band.
  • Inheritance tax charges may apply periodically (every 10 years) and where capital is distributed to a beneficiary.

IHT reporting
  • IHT100 reporting requirements may arise on creation of the trust, on each 10th anniversary of the trust and when trust capital is paid to beneficiaries.

Other tax
  • Accumulated income will be taxed at trust rates of 38.1% (for dividend income) and 45% (interest).
  • Dividend income that is distributed to beneficiaries may be subject to high effective rates of tax.
  • Capital gains tax may be payable by the settlor where an existing OEIC is put into the trust.
  • Capital gains made by the trustees may be subject to the higher rate.

Risks
  • Trustees may not have additional financial resources with which to pay the additional tax on the gross income produced by the OEIC.
  • High effective rates of tax may result where dividend income is distributed to a beneficiary, unless the trustees have a built up tax pool.

Key documents

Trust deed (PDF, 565KB)

Registering an OEIC under trust (PDF, 520KB)

Deed of appointment (PDF, 570KB)

Deed of retirement (PDF, 564KB)

Important notes for applications (PDF, 67KB)
 

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

Other literature 

Other information you need

  • The Discretionary Trust for OEICs is suitable for clients:

    • whose estate is likely to be liable to inheritance tax on death, even if maximum use is made of exemptions, reliefs and the nil rate band
    • who are able to make an outright, irretrievable gift and have no requirement for access to the gifted amount or the income it generates
    • who want the flexibility to decide who should benefit, to what extent and when according to circumstances
    • who wish to avoid any delay in distributing the proceeds of their investment which may otherwise arise where probate (or confirmation) is required before payment could be made
    • who are prepared to accept the reporting obligations and the possibility of tax charges which apply under the relevant property regime for inheritance tax
    • who are willing to accept the income and capital gains tax consequences, and associated administration, that may arise where an OEIC is held in a discretionary trust.

    Not for your client?

    Take a look at our other trust options

  • The Discretionary Trust for OEICs enables your client to make a gift of a Scottish Widows OEIC to a wide ranging class of beneficiaries yet maintain flexibility and control over who gets what and when.

  • The Discretionary Trust for OEICs is designed exclusively for use with the Scottish Widows OEIC.

  • The Discretionary Trust for OEICs is not subject to any charges.

    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 Discretionary Trust for OEICs. The Discretionary Trust for OEICs is designed for use with the Scottish Widows OEIC. It is not suitable for use with a bond or other life insurance based products.

    Please also ensure your client has read the important notes for applications (PDF, 67KB)


    The application stage

    Step 1

    Complete the OEIC application form. The application form should be completed by the client/investor.


    Step 2

    Complete the Discretionary Trust Deed (PDF, 565KB) The trust should usually be completed at the same time as the application form for the OEIC.

    The following items should accompany the application:


    Step 3

    The investment will be issued to the trustees.

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