Tax of Trusts

Question 1

What is a relevant property Trust?

Answer 1

• Disc. or IIP Trust that is:
  
  • Flexible
  • Created during lifetime after March 2006
  • not within specific exemptions

Question 2

ow are Bare trusts taxed for income Tax?

Answer 2

• Income taxable as beneficiaries income
• beneficiary liable for the tax
• must include taxable income on their self assessment

Question 3

How are bare trusts for minors taxed for income tax?

Answer 3

• usually taxed as settlor-interested trust, if income > £100
• tax on parent
• if income <£100 tax on child

Question 4

How are Trusts for Vulnerable Beneficiaries Taxed for Income Tax?

Answer 4

• Work out tax if taxed in normal manner
• Work out tax if on beneficiary
• The difference is given as relief

Question 5

How are Life interest/IIP Trusts taxed for income tax?

Answer 5

• Trustees liable for basic rate tax
• Beneficiary liable for any additional tax - income keeps its form
• Receive income tax credit for basic rate
• Possible to pay income direct to beneficiary so they can use their personal allowance and dividend allowance

Question 6

How are discretionary Trusts Taxed for Income Tax?

Answer 6

• Trustees liable for tax
• Tax on income at 45% and Dividends at 39.35%
• Beneficiary gets tax credit of 45%
• Therefore beneficiaries must pay additional tax on distributed dividends up to 45%

Question 7

How are bare trusts taxed for CGT?

Answer 7

• Gains treated as those of the beneficiary

Question 8

How are Trusts for Vulnerable Beneficiaries Taxed for CGT?

Answer 8

• Trustees pay at beneficiaries marginal rate- Can claim reduction between trust tax rate and beneficiaries normal rate

Question 9

How are IIP trusts taxed for CGT?

Answer 9

• Disposal by Trustees:
  
  • Usual tax rules, beneficiaries pay at 20%/24%
• Disposal on death of Life Tenant:
  
  • (pre 20006 trust) assets revalued + no tax on trustees
  • Any heldover gains are still taxable
  • Same ruled apply to IPDI, 18-25, bereaved minors and vulnerable/disabled trusts

Question 10

How are Accumulation and Maintenance Trusts Taxed for CGT?

Answer 10

• When beneficiary becomes entitled to property
• Tax charge
• May be able to be heldover if they are business assets

Question 11

How are Disc. Trusts taxed for CGT?

Answer 11

• Trustees liable to CGT at 20/24%

Question 12

How are Settlor-interested Trusts taxed for CGT?

Answer 12

• Trustees liable to tax at 20/24%

Question 13

IHT on Trusts

Answer 13

Bare - PET
IIP - Pre 2006 - PET
- Post 2006 - CLT
Disc. - CLT, Periodic Charges and Exit Charges