Chapter 7

Question 1

What is trust for vulnerable beneficiaries

Answer 1

This would be trust for the disabled statutory interest to citrus and certain will trust for the benefit of minors

Question 2

What is a life interest (interest in possession) trust

Answer 2

One or more beneficiaries have a right at the present time to income from the trust or right to use the trust property for life. An interest trust created during lifetime on or after 2 March 2006 is a relevant property trust

Question 3

What is a discretionary trust

Answer 3

There are no beneficiaries which have a right to income or capital trustees have the power to accumulate income and discretion to who to pay the funds to
A discretionary trust is a relevant property trust

Question 4

What is an accumulation and maintenance trust

Answer 4

Where income may be accumulated usually until the beneficiary reaches specific age not exceeding 25

Since 22 March 2006 a&m are relevant property trust

Question 5

what is a Relevant property trust created after 22of March 2006
(

Answer 5

This is a discretionary trust that is flexible in nature
It can contain money or houses or land or other assets
These assets are potentially liable for a charge to inheritance tax when -
It is transferred out of the trust
A 10 year anniversary occurs

It is a discretionary trust 
Chargeable to IHT-
On exit
10th anniversary.
The Excemptions to the relevant property rules are;
Set aside for a disabled person
Set aside for a bereaved minor
Put into an age 18 to 25 trust

Question 6

What is a bear (absolute) trust

Answer 6

Trustees act as nominees for the beneficiaries who are absolutely entitled to the assets upon attaining age of minority. Implied, presumptive and constructive trusts are bare trusts

Question 7

How were gifts into interest in possession trust treated before March 22, 2006

Answer 7

They were treated as potentially exempt transfer is meaning lifetime inheritance tax was not payable and the trust would not have been subjected to exit charges or 10 year anniversary charges
This change with the Finance act 2006 they are now taxable under the relevant property regime

Question 8

What is the one exception to the interest in possession trust for relevant property regime

Answer 8

It is the transitional serial interest
The trust assets will be treated as if they are within their estate for inheritance tax purposes

They will continue to benefit from the simplified PET regime if-
The interesting possession existed before 5 October 2008 without changes since

The interest arose on the death of a spouse who had and I I P as at 5October 2008

Question 9

What are the tax liabilities and responsibilities of self assessment for trustees

Answer 9

They must complete tax returns and CGT each year
Must make both interim and final balance thing payments 31st of Jan and 31st July
CGT paid by 31st of Jan following year
All trustees are jointly and severally liable for tax due
Unpaid tax can be recovered from any of the trustees and then maybe personably liable

Question 10

What is the tax position of a bare trust

Beneficiary or trustee??

Answer 10

Although the asset is in the trust The income belongs to the beneficiary and is taxed as such
The beneficiary needs to put income and capital gains on the self-assessment tax return as normal

The exception to this is if it’s the parents money
And the income exceeds £100 this is then a settlor
interest trust, this is not the case if the gift comes from a grandparent. Even if income taxed as parent the child still gets their full annual CGT allowance

Question 11

What did the finance act 2005 change for vulnerable people

Answer 11

Created a new tax regime so assessment falls to the beneficiary and not under trust tax rules

Two categories are;
Disabled persons
Relevant minors
But must meet criteria

Question 12

What is the criteria for a disabled person under the Finance act 2005

Answer 12

A person unable to administer their own property under the mental health act 1983

In receipt of attendance allowance or disability living allowance

After 8 April 13 in receipt of personal Independence payment

Question 13

Under finance act 2005 what’s the definition of a relevant minor

Answer 13

Under 18
They qualify for the following special trusts-
Statutory trust
Will trusts following death of parent 
Criminal injuries money 

Any of the above can be in a bare, discretionary or interest in possession trust
Capital and income must be used for the benefit of the vulnerable person, however £3k or 3% (lower) can be used without proof

Question 14

A qualifying vulnerable trust must make an election to get the beneficial tax treatment, in what time scales

Answer 14

31 jan the following 12 months after the effective date ie nearly 2 yrs later
It's irrevocable until;
Their no longer vulnerable
Trust stops
No longer a qualifying trust

Question 15

Vulnerable trust tax relief- how does its work

qualifying trust income

Answer 15

Trustee tax liability - vulnerable person tax liability= the relief by which trustees liability is reduced
This type of trust is taxed as if the trust didn’t exist. Disabled, Intestacy and for minors are classes as vulnerable.

Question 16

Are trustees liable to 40% tax?

Answer 16

No
20% on savings and other income 10% dividend income

But the beneficiary may be

Question 17

What is the order trust expenses are set against income before being paid to a beneficiary

Answer 17

Uk dividend
Foreign dividends
savings income
Other income
Done via r185 tax form

Question 18

Will a basic rate tax payer have any more tax to pay on income from trust income

Answer 18

No as get a tax credit
If none tax payer they can reclaim - but not dividend tax
If they are 40% or 45% they have to pay more

Question 19

What’s the tax position of discretionary and A&M trusts

Answer 19

Trustees have standard nil rate band of £1000 divided by no of trusts with min of £200 per trust
Within standard band tax is 10% or 20% depending on source of income

Thereafter income tax is at 45% other than divi income, 20% deducted at source, 25% additional to pay

Uk divi is 37.5% ( 10% already taken)

Question 20

Who is liable to pay the tax on a income distribution on discretionary trust and at what rate ?

Answer 20

The trustees at 45%, the beneficiary gets the tax credit