Trusts

Question 1

How are disposals taxed within IIP trusts made after March 2006?

Answer 1

Always higher CGT rate (20% or 28%)

NB: same as pre ‘06 IIPs

Question 2

What is the CGT position on death of the beneficiary of an IIP trust made after March 2006?

Answer 2

No uplift
- Unrealised gains are crystallised and CGT due

Question 3

How is income taxed in a post 2006 IIP trust?

Answer 3

20% taken at outset (organised by trustee) and then the difference paid/reclaimed by beneficiary

Question 4

What is the tax position on transfer into a post 2006 IIP trust?

Answer 4

CLT at 20%

If x amount is paid in then you will need to do (x/0.8) to find the tax due to HMRC

Question 5

What is the tax position on transfer into a discretionary trust?

Answer 5

CLT at 20%

If x amount is paid in then you will need to do (x/0.8) to find the tax due to HMRC

Question 6

What is the tax position on distribution of capital to a beneficiary from a post 2006 IIP trust?

Answer 6

An exit charge is due.

Question 7

What is the tax position on distribution of capital to a beneficiary from a discretionary trust?

Answer 7

An exit charge is due.

Question 8

What is the exit charge and how is it calculated in the first 10 years of a trust’s existence?

Answer 8

• The IHT equivalent when IIP post 06 and discretionary trusts make a capital distribution or appointment of capital.
• 30% of the lifetime rate that would have been charged on a hypothetical transfer by the settlor accounting for their gifts in the last 7 years (usually 20% as CLT so limited to 6% max)
• However you only actually pay x/40ths of this with x being the number of full 3 month periods since inception

Question 9

With an IIP post 2006 and a discretionary trust, when is CGT due and when is IHT due?

Answer 9

• CGT is due on the disposal of assets which gained value
• IHT (exit charge) is due each time a capital distribution or appointment of capital is made

Question 10

What is the exit charge and how is it calculated once a trust has been in existence for over 10 years?

Answer 10

It is the IHT equivalent when IIP post 06 and discretionary trusts make a capital distribution or appointment of capital.

After 10 years, it is based on x/40ths of the last periodic charge, where x is the number of full 3 month periods since then.

Question 11

What is the ongoing IHT position of a post 06 IIP trust?

Answer 11

• Pay a periodic charge
• Takes place every 10 years.
• 30% of the lifetime rate if the settlor made a transfer in (usually 20% CLT so 6% due).

Question 12

What is the ongoing IHT position of a discretionary trust?

Answer 12

You pay a periodic charge which takes place every 10 years. The charge is 30% of the lifetime rate if the settlor made a transfer in (usually 20% CLT so 6% due).

Question 13

What is the CGT rate in on disposals within discretionary trusts?

Answer 13

It is based on the trustee’s CGT rate.

If there are multiple trustees then it is split between them.

Question 14

What is the tax position on income generated within a discretionary trust?

Answer 14

• Always additional rate paid by trustee after a £1,000 allowance per settlor.
• This can then be reclaimed by the beneficiary.

Question 15

What is the CGT position on disposals within a bare trust?

Answer 15

Beneficiary’s responsibility at their marginal rate (10%/20%)

Question 16

What happens to unrealised gains held within a Bare trust on death of the beneficiary?

Answer 16

Unrealised gains are crystallised and due at the beneficiary’s marginal rate

Question 17

What is the tax position on income generated within a Bare Trust?

Answer 17

Treated just as the beneficiary’s income; taxed at their marginal rate and usually their responsibility

Question 18

What is the IHT position on a transfer into a Bare Trust?

Answer 18

Regular PET

Question 19

Who’s estate are the assets of a Bare Trust held in?

Answer 19

• The settlor for the duration of the PET
• Then the Beneficiary’s