1. Setting up the trust

• Is the FRT suitable for joint settlors? No. The FRT is for a single settlor only. The premium must come from an individual bank account or GIA, not a joint account. Using a joint account could have adverse inheritance tax consequences.
  

• Can additional contributions be made after the trust is established? No. Only one single premium is permitted. Once the bond has been issued to the trustees, no further contributions can be made.
  

• Can an existing bond be transferred into an FRT? No. The FRT can only be set up with a new Transact onshore or offshore bond.
  

• Does the settlor have to be a trustee? No. The settlor is not automatically a trustee. This helps ensure the settlor is not perceived as influencing decisions regarding vesting or deferral, which is important for the intended tax treatment.
  

• Is an independent trustee required? Yes. At least one trustee must be independent – meaning someone who is not the settlor, their spouse, civil partner, cohabitee, child, or financial adviser. A professional trustee is not mandatory, but we strongly recommend appointing one. Transact lists several examples of potential candidates (including Zedra, Ludlow Trust, and WAY) on our website. Any queries about charges should be directed to the relevant firm.
  

• What paperwork is needed to open an FRT? The following documents are required: the FRT deed; T001(TR) trust portfolio application form; T022(TR) for an onshore bond or I001(TR) for an offshore bond; and the Trust Registration Service (TRS) proof of registration document. Transact will carry out standard anti-money laundering checks before setting up the bond and requesting payment.
  

• Have any of the application forms changed? Yes. The T001(TR) now includes a yes/no tick box asking whether this is a Transact Flexible Reversionary Trust. It is important that (with respect to FRT’s) this box is ticked to ensure various restrictions and events linked to the FRT are managed accordingly. Both bond application forms have also been updated with additional wording around lives assured, regular withdrawals, and the premium. Notably, the declaration now requires the settlor to sign as the bond applicant – rather than the trustees, as would normally be the case for other trust types. The settlor applies for the bond and directs Transact to issue it in the trustees' name. The trustees must also sign the bond form, but they are not technically the applicants.
  

• Do the dates on the deed and bond form need to match? Yes. The settlement date in section 1 of the deed, the date of application for the bond in Schedule A of the deed, and the settlor's signature date in the authorisation section of the bond form should all be the same.
  

• How is the gift treated for IHT? The transfer into the FRT is a chargeable lifetime transfer (CLT). It is worth noting that where the value of the gift into the FRT, together with any other CLTs made in the previous seven years, equals or exceeds 80% of the available nil-rate band (currently £260,000), the transfer must be reported to HMRC via form IHT100a, even if no IHT is actually due. This 80% reporting threshold applies because the gift is not in the form of cash or shares, but the bond itself.
  

• Are there any additional Transact charges for an FRT? No. There are no Transact charges that apply in addition to those applicable to the relevant bond type (onshore or offshore) as set out in our Charges Schedule. If a professional trustee is appointed, they will levy their own fees. Advisers should contact the relevant firm directly for information on these.
  
  

2. Vesting and deferrals 

• How does a vesting date work in practice? Each vesting date is tied to the bond commencement date and the year specified in Schedule B of the deed. For example, if the bond commences on 12 June 2026 and Policy Fund A has a vesting date of 2027, it will vest on 12 June 2027, unless the trustees have acted to defer or defeat the entitlement before that date.
  

• Will a policy fund vest automatically if no trustee action is taken? Yes. If the settlor is alive on the vesting date and the trustees have not made an explicit decision to defer or defeat, the policy fund will vest in the settlor automatically.
  

• How do the trustees notify Transact of a decision relating to a policy fund? Responsibility for monitoring vesting dates and maintaining appropriate trust records ultimately rests with the trustees. Trustees can use our Flexible Reversionary Trust Trustee Decision Log (available online under Information > Trust Documents) to help them with this. To notify Transact of the decision/s made, the trustees should complete form T070 and send it to us. This will help us maintain records of policy fund statuses throughout the life of the trust as a back-up to the trustees’ own records. We intend to issue a reminder letter, along with the T070 form, to trustees approximately two months before each vesting date.
  
  

• Can the settlor choose to take only some of the vested policies in a given year? No. Vesting and deferral operate at the level of whole policy funds. When a vesting date arrives, the entire policy fund reverts to the settlor unless the trustees have previously resolved to defer it in full. It is not possible to allow part of a policy fund to vest while deferring the rest.
  

• Is defeating a reversion different from deferring it? Yes. The deferral must apply to the entire policy fund. Defeating a reversion, where the trustees appoint the policies to a beneficiary instead of allowing them to vest in the settlor, can apply to the whole policy fund or just a portion of the policies within it.
  
  

3. Accessing funds

• Once policies have vested, can the settlor choose how much to encash? Yes. Once policies have vested, the settlor can surrender some or all of those policies, leaving the remainder within the bond if they wish. Withdrawals must be requested by policy surrender rather than by monetary value.
  

• Can the settlor use the 5% annual withdrawal allowance on vested policies? Only if the vested policies are first assigned out of the trust and into a bond held in the settlor's own name. The 5% facility is not available while the policies remain within the trust structure (other than for payment of professional trustee fees, see below)
  

• Are the trustees permitted to take partial withdrawals from the bond? No. The only exception is to facilitate the payment of professional trustee fees.
  
  

4. Fees and charges

• How are professional trustee fees paid? Professional trustee fees are met from within the bond by way of a partial encashment, processed through our standard bond partial withdrawal process.
  

• Where do adviser and DIM fees come from? Adviser and DIM charges can be taken from the bond and will be treated as withdrawals for chargeable event calculation purposes. Alternatively, they can be paid via a fee payment GIA, but only if that GIA is in the settlor's own portfolio. The FRT GIA will remain empty.

5. Record keeping

• Who is responsible for keeping records of the policy funds, vesting dates and deferrals? The responsibility for keeping these records lies with the trustees and we suggest that you consider the appointment of professional trustees. Transact will contact the trustees around two months before the vesting date and also request that the trustees notify us of the decisions made at each vesting date.

6. Tax on encashment

• When the settlor encashes vested policies, is there a tax liability? Potentially, yes. Chargeable gains follow the usual rules. Where a vested policy is surrendered, any gain falls on the settlor (whilst they are alive), regardless of whether the policy was formally assigned to them first, since vested policies are held on bare trust for the settlor. Where a non-vested policy is assigned to a beneficiary and then surrendered, any chargeable gain falls on that beneficiary. Where a non-vested policy is surrendered by the trustees during the settlor's lifetime (or in the same tax year as the settlor's death), any gain falls on the settlor, who can reclaim any resulting income tax liability from the trustees. Where the surrender occurs in a tax year after the settlor's death, any gain falls on the trust and is subject to trust rates.