Pillar Guide · Updated July 2026
Discounted Gift Trust: A Complete UK Guide for 2026/27
A Discounted Gift Trust lets you reduce a future Inheritance Tax bill while still receiving a fixed income from the money you have given away. This guide explains how the discount is calculated, the trust structures used, and who this type of planning suits.
What a DGT Is
A Discounted Gift Trust is an Inheritance Tax planning tool built around an investment bond held in trust. You invest a lump sum and, in return, receive a series of pre-agreed, fixed regular withdrawals (often described informally as an "income", though technically a return of capital and growth from the bond) for the rest of your life. In exchange for giving up rights to the underlying capital, an insurer's underwriter assesses part of the gift as immediately having a reduced value for Inheritance Tax.
How the Discount Is Calculated
The insurer's underwriter estimates the open-market value of your right to receive the fixed withdrawals for the rest of your life, taking into account your age, sex, health and the amount of income chosen. This estimated value is deducted from the total sum invested to arrive at the "discounted" gift value — broadly, the amount considered to have left your estate immediately, with the remainder (representing your retained right to income) staying within your estate until it is used up or you die.
Trust Structures Used
A DGT can be set up as a bare (absolute) trust, where the discounted gift is a potentially exempt transfer that becomes fully outside your estate if you survive seven years, or as a discretionary trust, where the discounted gift is instead a chargeable lifetime transfer, potentially triggering an immediate charge if it exceeds your available nil rate band, but offering more flexibility over who ultimately benefits and when.
Who a DGT Suits
A DGT is generally aimed at people in reasonably good health with surplus capital beyond their foreseeable needs, who want to start reducing a future Inheritance Tax liability now, but who also want (or need) a predictable, fixed income stream from that capital rather than giving it away outright with no return. It is not designed for people who might need flexible access to the invested capital later.
Risks to Consider
- The regular withdrawal level is fixed at the outset and generally cannot be increased later to meet rising income needs
- The underlying investment carries market risk, and poor performance could exhaust the fund before withdrawals are due to end
- If you die within seven years, most or all of the discounted gift can still count towards your estate for Inheritance Tax, depending on the trust type and how much of the seven years has elapsed
- Underwriting terms and the discount achievable depend heavily on health at the time of setting up the trust, and cannot be revisited later
Accessing the Underlying Capital
Once set up, access to the capital within a DGT is generally very limited or not possible at all beyond the agreed fixed withdrawals, since the arrangement is built on the basis that you have given up rights to the capital itself. This makes a DGT unsuitable for money you might need to draw on flexibly, and it should only be considered with funds that are genuinely surplus to your foreseeable needs.