You could certainly put the bond into a bare trust, and that would still be a Potentially Exempt Transfer but I would ask what would be gained by using the trust structure. The beneficiaries of a bare trust, if over 18 as here, are entitled to income and capital absolutely, so they could claim the bond, or its proceeds, and the trustee(s) could not refuse. Why not just gift the bond outright to the children? That would still be a PET and drop out of account after 7 years.

If you wanted to retain control, a gift to a discretionary trust would be possible. Although a Chargeable Lifetime Transfer, in practice there should be no adverse IHT implications if the gift, added to CLTs in the previous 7 years, do not exceed the nil rate band. If you survive 7 years, this again drops out of account so long as there are no PETs in the period.

The gift of an insurance bond is not a chargeable event. However, as you have stripped out the cumulative 5 per cents, any further withdrawal by the children or bare trust trustees will be a chargeable event, assessed on the children. If in a discretionary trust, this is assessed on you, if alive, and on the trustees, if not.

I would suggest you investigate the situation if you cashed the bond fully. Be mindful of charges (unlikely after 20 years!), MVR if With-Profits, and the possible impact on any Age Allowance if over 65. If this could be done cost effectively and, using top slicing, without a tax bill, you could either “rebase”, ie take out a new bond with a new set of 5 per cents etc, or, probably better, gift the cash to your children or a discretionary trust, where it can be invested to best suit the circumstances and tax position of the recipients.