Discount Factors Workbook by 59470D

VIEWS: 7 PAGES: 12

									TAX CALCULATOR FOR DISCRETIONARY DISCOUNTED GIFT TRUSTS
FOR ADVISER USE ONLY - NOT APPROVED FOR USE WITH CLIENTS



INSTRUCTIONS
Input the relevant information and your chosen growth rates in the shaded boxes and press the Return key. (You do
not need to enter % or £.) Read off the potential tax charges from the red boxes. If calculator does not update
automatically press F9.



This calculator is designed to provide a basic indication of a potential inheritance tax liability on a discretionary
discounted gift trust. It does not take into account all the possible individual circumstances that may impact on the tax
position, nor does it include the value of the rest of a person's estate. It should not be taken as offering advice or any
recommendation. Circumstances in the future may change an inheritance tax position. Every care has been taken as
to the accuracy of the calculator, but it must be appreciated that neither Prudential Group nor its representatives can
accept any responsibility for loss, however caused, suffered by any person who has acted or refrained from acting as a
result of material contained in this spreadsheet. The information below is based on our understanding, as at February
2012 , of current taxation, legislation and HM Revenue & Customs practice, all of which may change without notice.
The impact of taxation (and any tax reliefs) depends on individual circumstances.

Please see below for Important Notes on the methods of calculation and the assumptions used.

For more information on trusts and tax, please see "Inheritance tax planning - Adviser guide" (IHTB10026) which is
available on www.pruadviser.co.uk or through your usual Prudential contact.



BASIC INFORMATION
    Today's date (DD/MM/YYYY)

    Net amount of gift into trust (after tax)
    Total of chargeable transfers in previous seven years
                                                                                          Amount
    Payment required (as cash sum)
    Sex
    Date of birth (DD/MM/YYYY)                                                                        Age
    % discount
    Selected net annual growth rate (net of annual withdrawals)
    Selected annual increase in nil rate band


ADDITIONAL INFORMATION
    Select the desired calculation and complete shaded boxes

    Split between discretionary and absolute trusts to avoid tax charges        6
    Number of years between trust set-up and death

    Discount value after:                                                                10 years

    % discount

    Years and months between trust set-up and distribution                                0 year(s)
    Amount of distribution

    Years and months between trust set-up and death                                      0 year(s)


RESULTS
IDEAL SPLIT BETWEEN DISCRETIONARY AND ABSOLUTE TRUSTS

    Amount of gift into:                                                           Discretionary

    To avoid an immediate tax charge                                                    £325,000

    To avoid immediate and 10-year periodic charge                                      £325,000

    To avoid immediate, 10 and 20-year periodic charges                                 £325,000


TAX CHARGE ON DEATH WITHIN 7 YEARS
    Assumed nil rate band                                                               £325,000

    Available nil rate band                                                             £325,000

    Tax charge                                                                                 £0

    Rate of taper relief                                                                  0.000%

    Amount of taper relief                                                                     £0



    Tax due                                                                                    £0




IMPORTANT NOTES

NOTES ON THE CALCULATION AND PAYMENT OF THE TAX CHARGES
1
    The calculator does not take into account the possible use of annual exemptions (£3,000 for the tax year in which
    the gift is made plus £3,000 carried forward from the previous year if unused). The tax effect of these would be
    small.
2 The assumed nil rate bands used in the calculations are based on the current rate of £325,000 (2011/2012 &
  2012/13 tax year and fixed at this level until 2014/2015. This rate is liable to change) scaled up by the selected
  annual increase. Depending on what rate you select, the result may be more or less than the actual nil rate band
  that has been announced for the tax year 2012/2013. Only one nil rate band is assumed to be available.
3 The calculations assume that no further chargeable lifetime transfers are made after the trust is set up.
4
    The ideal split between discretionary and absolute trusts shows how much of the gift can be put into a discretionary
    trust without incurring any immediate charge, periodic charge at first ten-year anniversary or periodic charge at
    second ten-year anniversary (assuming the settlor is still alive). It also shows the maximum that could be put into a
    discretionary trust without incurring each of these charges, assuming the client takes the same percentage income.
    In each case, this level of gift would avoid any exit charges up to the day before the third ten-year anniversary
    (assuming the settlor was still alive at the date of the previous ten-year anniversary). The tax payable on death
    within seven years is the total for both absolute and discretionary trusts, assuming the gift was split such that no
    immediate tax was paid.

    Immediate charge
The immediate charge is at the lifetime rate of 20%. This is charged on the excess of the discounted value of the
gift into trust over the available nil rate band, which takes into account any chargeable transfers made in the
previous seven years. The calculator assumes that any immediate tax due is paid by the donor, which means the
tax rate is grossed up to 25%, as the tax payment represents a further gift being made. This will generally be the
case for discounted gift trusts invested in bonds, as otherwise part of the bond would need to be surrendered
immediately to pay the tax if no other trust funds were available. If the gift is made between 6 April and 30
September inclusive, the immediate tax is due on 30 April the following year. If the gift is made between 1 October
and 5 April inclusive, the tax is due six months after the end of the month in which the gift is made.

Additional charge
If the donor dies within seven years of setting up the trust, the tax due on the gift is recalculated using the full IHT
rate of 40% and the current nil rate band. If the donor paid any immediate tax due, this will be added to the net
amount of the gift, as it represents a further gift made. The available nil rate band takes into account any
chargeable transfers made in the seven years before the trust was set up. If the donor dies more than three years
after making the gift into trust, taper relief will be available. If the amount of tax due is more than the amount
already paid under the immediate charge, there will be an additional tax charge to make up the difference. If the
amount is less, there will not be any refund. Any additional tax due is the primary responsibility of the trust and is
payable six months after the end of the month in which death occurs.

Periodic charges
Every 10 years the discounted value of the trust fund may be subject to a periodic charge. The calculation is based
on the excess over the nil rate band, taking into account any previous chargeable transfers made in the seven
years before the trust was set up. The tax rate that applies is 30% of the effective lifetime rate. The calculations
assume that the periodic charges are met from the trust fund and that no distributions from the trust, or additions to
it, have been made.

Exit charge on capital distributions in first 10 years
Where part or all of the trust fund is distributed to a beneficiary, there may be an exit charge. During the first 10
years, this will be based on 30% of the effective lifetime rate. This is then adjusted for the amount of time since the
trust was set up, measured in complete quarters. The calculation is based on the original discounted value of the
gift into trust, not its present value, but uses the current nil rate band. The calculator assumes that the charge is
met from the trust and that there have been no other distributions from the trust or additions to it.

Exit charges on capital distributions after 10 years


After 10 years, the exit charge will be based on 30% of the effective rate at the last 10-year anniversary, but
recalculated using the current nil rate band. As above, it is adjusted for the time that has elapsed since the last
charge, measured in complete quarters. The calculations assume that there have been no previous distributions
from the trust or additions to it and that the charge is met from the trust. Exit charges on distributions after 20 years
or more take into account the payment of any periodic charge at the 10th anniversary.

Exit charge where the whole trust fund is distributed on death in first 10 years
This assumes the entire trust fund is distributed after the donor's death. It is calculated in exactly the same way as
the exit charge on capital distributions in the first 10 years, but the charge applies to the whole fund (not
discounted). The calculator assumes the charge is met from the trust and that there have been no previous
distributions from the trust or additions to it.

Exit charges where the whole trust fund is distributed on death after 10 years

This assumes the entire trust fund is distributed after the donor's death. It is calculated in exactly the same way as
the exit charge on capital distributions after 10 years, but the charge applies to the whole fund (not discounted).
The calculations take into account the payment of any previous periodic charges; they also assume there have
been no previous distributions from the trust or additions to it and that the exit charge is met from the trust.
COUNTED GIFT TRUSTS

                                                    1



es and press the Return key. (You do
s. If calculator does not update




 e tax liability on a discretionary
 umstances that may impact on the tax
not be taken as offering advice or any
 osition. Every care has been taken as
 tial Group nor its representatives can
o has acted or refrained from acting as a
  on our understanding, as at February
of which may change without notice.
 s.

sumptions used.

Adviser guide" (IHTB10026) which is


                         Complete the
                         shaded boxes




                              Frequency




                                             n.b.




                                       0-1

                                20 years



                              0 month(s)
                                  0 month(s)




                                                    Maximum gift
                                   Absolute     into discretionary

                                           £0           £325,000

                                           £0           £325,000

                                           £0           £325,000




E TAX CHARGES

ptions (£3,000 for the tax year in which
 d). The tax effect of these would be

ent rate of £325,000 (2011/2012 &
o change) scaled up by the selected
 e or less than the actual nil rate band
d is assumed to be available.
 ade after the trust is set up.
 of the gift can be put into a discretionary
 ar anniversary or periodic charge at
ws the maximum that could be put into a
  ent takes the same percentage income.
efore the third ten-year anniversary
 iversary). The tax payable on death
suming the gift was split such that no
  excess of the discounted value of the
chargeable transfers made in the
 is paid by the donor, which means the
being made. This will generally be the
ond would need to be surrendered
s made between 6 April and 30
 r. If the gift is made between 1 October
  which the gift is made.



  e gift is recalculated using the full IHT
ax due, this will be added to the net
e band takes into account any
 f the donor dies more than three years
  tax due is more than the amount
arge to make up the difference. If the
 imary responsibility of the trust and is




eriodic charge. The calculation is based
geable transfers made in the seven
 ective lifetime rate. The calculations
stributions from the trust, or additions to




be an exit charge. During the first 10
djusted for the amount of time since the
on the original discounted value of the
 alculator assumes that the charge is
trust or additions to it.




the last 10-year anniversary, but
time that has elapsed since the last
e have been no previous distributions
t charges on distributions after 20 years
nniversary.


s calculated in exactly the same way as
 pplies to the whole fund (not
hat there have been no previous




s calculated in exactly the same way as
s to the whole fund (not discounted).
arges; they also assume there have
 xit charge is met from the trust.
TAX CALCULATOR FOR DISCRETIONARY DISCOUNTED GIFT TRUSTS

FOR ADVISER USE ONLY - NOT APPROVED FOR USE WITH CLIENTS

Current nil rate band                       £325,000

Input information:
Net amount of gift into trust (after tax)        £0        Periodic tax charge after 10 years
Total of chargeable transfers in
previous seven years                             £0        Input additional information:


% discount                                    0.00%        % discount (if applicable)



Selected net annual growth rate                0.0%
Selected annual increase in nil rate                       Assumed nil rate band at time of
band                                           0.0%        charge
                                                           Discounted value of trust fund at
                                                           time of charge
Immediate tax charge                                       Aggregate chargeable transfer
Discounted value of gift into trust               £0       Chargeable rate
Available nil rate band                     £325,000       Periodic tax due
Taxable amount                                    £0
Immediate tax due (grossed up)                    £0       Periodic tax charge after 20 years
                                                           Input additional information:
Additional charge on death within 7 years                  % discount (if applicable)
Input additional information:                          0
Number of years between trust set-up
and death                                        0-1
                                                           Assumed nil rate band at time of
                                                           charge
Assumed nil rate band at time of                           Discounted value of trust fund at
death                                       £325,000       time of charge
Available nil rate band                     £325,000       Aggregate chargeable transfer
Tax due                                           £0       Chargeable rate
Rate of taper relief                             0%        Periodic tax due
Amount of taper relief                            £0
Tax already paid                                  £0
Balance due                                       £0




Tax due on death within 7 years

Input additional information:                              Amount of gift into discretionary trust
Number of years between trust set-up                 Discounted value of gift into
and death                                      0-1   discretionary trust


                                                     Amount of gift into absolute trust
Assumed nil rate band at time of                     Discounted value of gift into absolute
death                                     £325,000   trust
Available nil rate band                   £325,000
Tax due                                         £0
Rate of taper relief                           0%
Amount of taper relief                          £0

Balance due                                    £0


Max premium to avoid immediate charge     £325,000
Max premium to avoid 1st TYA              £325,000
Max premium to avoid 2nd TYA              £325,000



Fund value after 30 years (no discount)         £0   10 yr fund value (before discount)
NRB after 30 years                        £325,000   20 yr fund value (before discount)
Tax due                                   -£19,500   30 yr fund value (before discount)
Max premium to avoid 3rd TYA              £325,000
                                  Exit charge on capital distributions in first
harge after 10 years              10 years

                                  Input additional information:
                                  Number of complete quarters
                                  between trust set-up and
                         0.00%    distribution                                0    0
                                  Amount of distribution                      £0



                                  Assumed nil rate band at time of
                       £325,000   distribution                         £325,000

                             £0   Chargeable rate                        0.000%
                             £0   Exit tax due                                £0
                        0.000%
                             £0
                                  Exit charge on capital distributions after 10-
harge after 20 years              20 years
                                  Number of complete quarters
                                  Input additional information:
                         0.00%    between last periodic charge                0    0
                                  Amount of distribution                      £0



                                  Assumed nil rate band at time of
                       £325,000   distribution                         £325,000
                                  Discounted value of trust fund at
                            £0    last periodic charge                        £0
                             £0   Aggregate chargeable transfer               £0
                        0.000%    Chargeable rate                       0.000%
                             £0   Exit tax due                                £0
                                  Exit charge on capital distributions after 20-
                                  30 years
                                  Input additional information:
                                  Number of complete quarters
                                  between last periodic charge
                                  and distribution                            0
                                  Amount of distribution                      £0   0

                             £0
     Assumed nil rate band at time of
£0   distribution                        £325,000
     Discounted value of trust fund at
£0   last periodic charge                     £0

£0   Aggregate chargeable transfer            £0
     Chargeable rate                      0.000%
     Exit tax due                              £0




£0
£0
£0
Exit charge where whole trust fund is
distributed on death in first 10 years

Input additional information:

Number of complete quarters
between trust set-up and death             0


Assumed nil rate band at time
of death                            £325,000
Value of trust fund at time of
death                                     £0

Chargeable rate                      0.000%
Tax due                                   £0



Exit charge where whole trust fund is
distributed on death after 10-20 years
Number of complete quarters
Input additional information:
between last periodic charge               0

Assumed nil rate band at time
of death                            £325,000
Discounted value of trust fund
at last periodic charge                   £0

Aggregate chargeable transfer             £0
Chargeable rate                       0.000%
Value of trust fund at death               £0
Tax due                                    £0
Exit charge where whole trust fund is
distributed on death after 20-30 years
Input additional information:
Number of complete quarters
between last periodic charge
and death                                  0

Assumed nil rate band at time
of death                            £325,000
Discounted value of trust fund
at last periodic charge              £0


Aggregate chargeable transfer        £0

Chargeable rate                  0.000%
Value of trust fund at death         £0
Tax due                              £0

								
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