What is the inheritance tax (IHT) treatment of the flexible trust?
For protection policies only. This information is for intermediaries only. It mustn't be distributed to, or relied on by, customers.10 October 2019
The flexible trust is an interest in possession trust.
The payments to maintain the policy may be covered by an exemption such as the £3,000 yearly exemption or normal expenditure out of income exemption. To the extent that they aren’t exempt, they will be chargeable lifetime transfers.
The trustees are subject to ongoing IHT charges, such as 10-year charges and exit charges. While the insured person is in good health, the value of the trust will usually be nil or negligible. This means the risk of the trustees having to pay IHT when they make payments to the beneficiaries, or on the 10th anniversary of the creation of the trust, is low.
For more information about IHT exemptions and chargeable lifetime transfers, please go to gov.uk(Opens new window)
This information is based on our understanding of current taxation law and HM Revenue & Customs (HMRC) practice, which may change.
Trusts establish legal rights and entitlements and might have material financial and tax implications for the settlor, trustees and beneficiaries. Aegon UK isn’t authorised to provide legal advice, so you should take your own legal advice before setting up a trust, to make sure that it meets your clients’ requirements. Our trusts have been drafted for use by UK domiciled individuals.