Discounted Gift Trust (DGT) Calculator
Calculate the immediate IHT discount on a Discounted Gift Trust and the amount outside your estate immediately. Model retained income, discount valuation, and 7-year taper.
Discounted Gift Trust IHT Calculator
A Discounted Gift Trust (DGT) places a lump sum into trust while retaining fixed income withdrawals. The discount — the actuarial value of your retained income rights — is immediately outside your estate, with the remainder outside after 7 years.
E.g. 5% means £10,000/year from a £200,000 investment
Frequently Asked Questions
What is a Discounted Gift Trust?
A Discounted Gift Trust (DGT) is an IHT planning arrangement where you invest a lump sum into a trust and retain the right to fixed regular withdrawals for life. The 'discount' is the actuarial value of your retained income rights — this is immediately outside your estate, reducing IHT from day one.
How is the discount calculated for a DGT?
The discount is calculated by an actuary based on: your age, gender, health, the size of the retained income withdrawals, and an assumed investment growth rate. The actuarial calculation represents the present value of the income stream you have retained. Providers must submit a health questionnaire, and HMRC may challenge excessive discounts.
What happens to the rest of the investment after the discount?
The remainder (investment minus discount) is treated as a Potentially Exempt Transfer (PET). This falls out of your estate after 7 years, with tapered IHT relief from years 3-7. After the 7-year period, the entire investment is outside your estate.
Can I access the capital in a DGT?
No. The key feature of a DGT is that you have no access to the capital — only the predetermined income withdrawals. If you can access the capital, it would be a gift with reservation of benefit (GROB), which remains in your estate.
What happens if I die within 7 years of setting up the DGT?
The discount is immediately outside your estate regardless of when you die. The PET element (investment minus discount) is subject to taper relief if you die within 7 years: 0-3 years: 40% IHT, 3-4 years: 32%, 4-5 years: 24%, 5-6 years: 16%, 6-7 years: 8%, 7+ years: 0%.
Is there an initial IHT charge on a DGT?
The investment minus the discount is a PET. If the PET (net amount) exceeds your available nil-rate band (£325,000), there may be a chargeable lifetime transfer charge if the trust is a discretionary trust, rather than a bare or interest-in-possession trust. Most DGTs use discretionary structures.
What is the income tax treatment of DGT withdrawals?
Withdrawals from a DGT that uses an offshore bond wrapper are tax-deferred under the 5% annual withdrawal allowance. You can withdraw up to 5% of the original investment per year with no immediate income tax charge. Total withdrawals over 100% of the investment will trigger a chargeable event gain.
Who are the typical beneficiaries of a DGT?
The settlor (who set up the trust) retains the income withdrawals. The remainder of the fund passes to the trust beneficiaries, typically children or other family members. The trustees manage the investment and ultimately distribute to beneficiaries outside the settlor's estate.