Ad-hoc Questions Flashcards
What 3 types of trust are not Relevant Property Trusts
- Bare Trusts
- Immediate Post Death Interest Trusts
- Bereaved Minor Trusts
Interest in possession trusts up to what date aren’t classed as Relevant Property Trusts
Created up to 27/03/2006
Beneficiaries not changed since 6/10/2008
Holdover relief is only available on what type of trusts
Relevant Property Trust
Why are Bare Trusts taxed on the rate of the beneficiary?
As they have absolute entitlement to the assets
How do discretionary and IIP trusts pay tax?
- Paid via self-assessment
- Paid on account
- on dates of 31st January and 31st July
- balancing payment made 31st January following year
What are the rates of Income tax for IIP trusts?
Savings Income - 20%
Dividend Income - 8.75%
Explain ‘Mandate Income’
Trustees instruct income to be paid directly to the beneficiary
What form do IIP Trustees prepare to detail income tax?
HMRC Form R185
Do beneficiaries declare Gross or Net income from an IIP?
Gross
What trusts do not all offsetting of trust management expenses?
Bare Trusts and Settlor Interested Trusts
Explain how TME’s are paid from IIPs
-TMEs reduce the income a beneficiary receives
- Set against dividends, then savings, then non-savings
- TME deducted from net income before paid to beneficiary
- R185 reduces gross income by deducting gross expenses.
What order is the Starting/Basic Rate applied to Discretionary Trust income
- Non-savings
- Savings
- Dividends
How is income from a discretionary trust received by the beneficiary?
As Trust Income and treated as non-savings income regardless of original source.
Summarise the Tax Pool rules for Discretionary Trusts
- When income is received, the trustee’s tax liability enters the pool
- When they pay out an income to beneficiaries, this must be paid with a 45% tax credit and the tax credit reduces the amount in the pool
- At the end of each tax year, if the tax liability in the pool is higher than the tax credits this will roll over to the previous year (the pool is in credit)
- If the tax paid is lower than the tax credits, the trustees make a payment to HMRC to cover the difference.
In a Discretionary Trust, what tax rate applies to Trust Management Expenses
Either 8.75% or 20% depending on the type of income they are offset against.
How is income to a beneficiary of an IIP trust received?
Income paid retains its type, allowing beneficiaries to use allowances etc
How is income to a beneficiary of an Discretionary trust received?
As trust income, with a 45% tax credit.
List the priority order of taxation for an Discretionary trust, with a Investment bond chargeable event
1 - The Settlor if alive in the tax year of the event.
2 - UK resident trustees
3 - Beneficiary
What documents are required for a trustee to claim on a life insurance policy?
- Deceased’s death certificate
- A copy of the Trust Deed
- The policy document
- Deeds of appointment/retirement of trustees
- A claim form
- Money laundering ID
What qualifies a beneficiary as a Vulnerable Person?
- a bereaved minor - under 18 predeceased by at least one parent
- a disabled person - someone who by reason of a mental disorder within the Mental Health Act 1983 is unable to administer their own property
OR someone that qualifies for
- PIP
- A disablement pension
- constant attendance allowance
- armed forces independent payment
What limit can capital be advanced to other beneficiaries of a Vulnerable Persons Trust?
lesser of £3,000 or 3% trust capital each year.
What form must trustees complete to get a vulnerable person election?
VPE1
How are state benefits impacted by Vulnerable Persons Discretionary Trusts
- As long as the property is put directly into the trust
- and not given to the beneficiary first
- state benefits are not affected
- else it may be classed as a deprivation of assets
Explain the 3 stages of calculating income tax for a Vulnerable Persons Trust
- Trustees calculate their income tax liability without VP election
- Trustees calculate income tax the VP would pay if income had been received directly
- The difference between the 2 is then deducted from what the trustees pay
