Taxation Of Trusts

Question 1

What is the tax rate within an IIP?

Answer 1

Non savings 20%

Savings 20%

Dividends 7.5%

Question 2

Tax on distribution from IIP trust

Answer 2

Income added to other income and subject to Personal Allowance

Non taxpayer reclaims savings and dividend income

BRT - no further tax

HRT - 40% / 32.5% less tax already paid

ART - 45% / 38.1% less tax already paid

Question 3

Tax within a Discretionary Trust

Answer 3

Basic rate tax within first £1,000 (shared equally up to 5 Trusts) tax at 20% / 7.5%
Non dividend income taxed at 45%
Dividend income taxed at 38.1%

Question 4

Tax on Distribution of Discretionary Trust (Income)

Answer 4

Subject to normal personal allowances

Distributions seem to have paid 45% /38.1%

Reclaim if non/basic or higher rate

Question 5

IIP on death

Answer 5

Pre 22nd March 2006 or if a Will Trust

Deceased share of trust is added to their estate
- - - - - - -
Post 22nd March 2006, same as Discretionary Trust- CLT with Periodic and Exit charge
Not in the estate of the Life tenant when they die

Question 6

What are the key exceptions with taxation rules on a Relevant Property Trust?

Answer 6

Assets in a trust such as money, shares, houses or land are known as ‘relevant property’. Most property held in trusts counts as relevant property. Inheritance Tax may be due on the assets held within a trust when:

they’re transferred out of a trust (exit charges)
a 10-year anniversary occurs

The only exceptions to this rule are when the asset is:

in an interest in possession trust and it was put there before 22 March 2006
subject to a ‘transitional serial interest’ made between 22 March 2006 and 5 October 2008
put into an interest in possession trust by the terms of a will or the rules of intestacy
set aside for a disabled person
set aside for a bereaved minor
put into an age ‘18 to 25 trust’