TRUSTS

In past years trusts have been a popular part of tax planning for many wealthier clients.  Trusts have also been used to ensure assets leave the IHT estate but are not passed down a generation (or two) at a stage where the younger generation are not thought to be ready for the capital wealth.  Disabled persons trusts, personal injury trusts etc. have also been a feature of our work.

In 2006 the Government changed the rules for trusts in a number of surprising ways.  At the time it was understood that proposals had been developed at the Revenue some years earlier but put into the “long grass” as unattractive for various reasons.  It was said that over time those involved had left HMRC trusts and that the Government was given the proposal by the current officers and adopted it in their Budget on the basis it would close tax loopholes and raise Revenue.  As a result of the 2006 changes many of the trusts that would have been possible in the past are now not tax effective.

Trusts pay higher rate tax generally.  Forming almost all trusts creates an IHT charge if the “nil-rate band” for IHT is exceeded.  Trusts also have a small IHT charge every 10 years.

However, we do consider trusts useful in certain circumstances – aside from injury/disabled circumstances these may include

1. Putting business assets into trust in order to reduce Inheritance Tax on death – planning for business to later be converted to cash/investment in nature – where the value put into trust is not required by the settlor(s) in future (Or income from it).
2. Family “non-tax” reasons such as concern over passing wealth to younger generation or worries about marital matters – ring fencing capital in effect.
3. Putting main residence into a trust with a view to ensuring value is not lost when care home fees may arise.
4. Nil Rate band trusts where wealth is surplus.

TIP:

If you have an existing trust ask for the tax position to be reviewed to ensure full compliance.

For more information contact Morag Lewis on 0141-887-7811 or morag.lewis@milnecraig.co.uk