Ad-hoc Questions

Question 1

What 3 types of trust are not Relevant Property Trusts

Answer 1

• Bare Trusts
• Immediate Post Death Interest Trusts
• Bereaved Minor Trusts

Question 2

Interest in possession trusts up to what date aren’t classed as Relevant Property Trusts

Answer 2

Created up to 27/03/2006
Beneficiaries not changed since 6/10/2008

Question 3

Holdover relief is only available on what type of trusts

Answer 3

Relevant Property Trust

Question 4

Why are Bare Trusts taxed on the rate of the beneficiary?

Answer 4

As they have absolute entitlement to the assets

Question 5

How do discretionary and IIP trusts pay tax?

Answer 5

• Paid via self-assessment
• Paid on account
• on dates of 31st January and 31st July
• balancing payment made 31st January following year

Question 6

What are the rates of Income tax for IIP trusts?

Answer 6

Savings Income - 20%
Dividend Income - 8.75%

Question 7

Explain ‘Mandate Income’

Answer 7

Trustees instruct income to be paid directly to the beneficiary

Question 8

What form do IIP Trustees prepare to detail income tax?

Answer 8

HMRC Form R185

Question 9

Do beneficiaries declare Gross or Net income from an IIP?

Answer 9

Gross

Question 10

What trusts do not all offsetting of trust management expenses?

Answer 10

Bare Trusts and Settlor Interested Trusts

Question 11

Explain how TME’s are paid from IIPs

Answer 11

-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.

Question 12

What order is the Starting/Basic Rate applied to Discretionary Trust income

Answer 12

• Non-savings
• Savings
• Dividends

Question 13

How is income from a discretionary trust received by the beneficiary?

Answer 13

As Trust Income and treated as non-savings income regardless of original source.

Question 14

Summarise the Tax Pool rules for Discretionary Trusts

Answer 14

• 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.

Question 15

In a Discretionary Trust, what tax rate applies to Trust Management Expenses

Answer 15

Either 8.75% or 20% depending on the type of income they are offset against.

Question 16

How is income to a beneficiary of an IIP trust received?

Answer 16

Income paid retains its type, allowing beneficiaries to use allowances etc

Question 17

How is income to a beneficiary of an Discretionary trust received?

Answer 17

As trust income, with a 45% tax credit.

Question 18

List the priority order of taxation for an Discretionary trust, with a Investment bond chargeable event

Answer 18

1 - The Settlor if alive in the tax year of the event.
2 - UK resident trustees
3 - Beneficiary

Question 19

What documents are required for a trustee to claim on a life insurance policy?

Answer 19

• 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

Question 20

What qualifies a beneficiary as a Vulnerable Person?

Answer 20

• 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

Question 21

What limit can capital be advanced to other beneficiaries of a Vulnerable Persons Trust?

Answer 21

lesser of £3,000 or 3% trust capital each year.

Question 22

What form must trustees complete to get a vulnerable person election?

Answer 22

VPE1

Question 23

How are state benefits impacted by Vulnerable Persons Discretionary Trusts

Answer 23

• 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

Question 24

Explain the 3 stages of calculating income tax for a Vulnerable Persons Trust

Answer 24

• 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