Trusts Flashcards
Periodic charge
Value of trust minus available NRB x 6%
ie 525,000 - 325,000 x 6% = 12,000
Effective rate is the periodic charge over the value x 100
ie 12,000 / 525,000 x 100 = 2.2857%
Also exit charge if you have not reached 10 year period.
Exit charge
Capital distributed post periodic charge.
Use the number of quarters up to a max of 40. x by periodic charge.
ie 4/40 x 600,000 x 2.2857% = £1,371.42
Interest in possession trust (right to income)
Trustees receive income gross.
Trustees are liable for 20% interest on gilt and deposit income.
No Personal allowance.
Beneficiary of income will receive income net of tax.
Trustees will supply R185 detailing tax paid.
Beneficiary will submit self assessment to settle additional tax if higher rate or reclaim overpaid tax if non tax payer.
Beneficary can claim the personal savings allowance.
Income could be mandated directly beneficiaries tax rates and therefore trustees would not then have to account for income tax.
discounted Gift plan
Written under trust.
Retains the right to received a series of fixed capital sums on pre selected dates.
Reg withdrawals using the 5% tax deferred withdrawal facility.
Provide the payments as a return of her capital.
Any growth in the value will be outside of estate for IHT.
How is discount calculated
Application is medically underwritten.
Based on age and health.
Calculated by actuaries.
Determines the payments made during the rest of the individuals lifetime. Discounted amount provides a saving to estate should she die within 7 years of gift.
Lasting Power of attorney
property and financial
health and welfare.
Steps required for Lasting Power of Attorney
Need to be over 18 and mental capacity.
Not bankrupt.
LPA must be on prescribed form.
Must state the donor and attorney have read prescribed information and attorney understands the duties.
Statement from a ceritificate provider stating donor understands the LPA and that there has been no fraud or undue pressure.
Signatures witnessed by adults independent of the family.
Registered with court of protection/office of public guardian.
Pay registration fee.
Inform any people/providers to be told.
Responsibilities of attorney
Making decisions in the best interest of Donor and respect donors human and civil rights.
only making decisions that are authorised by LPA
Consulting with donor/ helping them make their own decisions.
Keeping attorney’s money separate from donee.
Keeping Donee’s affiars private and confidential
Avoiding conflicts of interest.
Ensuring that proper records are kept.
Taxation of Bare Trust
Income tax.
Taxed as the beneficiaries income (trust is effectively ignored)
Incase of a minor, £100+ income taxed as parents income where parent is settlor.
CGT
Gift into trust is a disposal.
Holdover relief is available on business assets only.
Gain calculated as a benefit to the individual and trust is effectively ignored.
IHT
PET based on the loss in value to estate.
Property is regarded as owned by beneficiary.
Value of property is added to the value of beneficiary’s estate and is potentially liable to IHT
Taxation of interest in possession trust - Income tax
Income tax. Within trust Non -savings income 20% Savings income 20% Dividends 7.5% No Personal allowance within trust.
On distribution
Income added to other income and subject to personal allowances.
Non tax payer, can reclaim tax from savings and dividend income.
BRT, no further tax to pay
HRT, 40%/32.5% less tax already paid.
ART, 45%/38.1% less tax already paid.
Taxation of interest in possession trust - CGT
At outset
CGT payable by settlor.
Holdover relief available.
Within the trust.
Annual exemption of £5,850, if settlor has created more than 1 trust, shared down to a max of 5.
Trustees liable to CGT at 20% or 28%.
On distribution.
- Death - no chargeable unless holdover relief is claimed.
- Trust ceases and assets leave trust - gain liable to CGT by trustees. Net paid to beneficiary.
Taxation of interest in possession trust - IHT
Outset
PET based on the loss in value to estate.
Within trust
Property is regarded as owned by beneficiary.
On distribution
Value of property is added to the value of beneficiary’s estate and is potentially liable to IHT
Taxation of Discretionary Trusts Income Tax
Within Trust
Basic rate band £1,000, if settlor has created more than 1 trust this is shared down to 1/5. Within this band taxed at 7.5%/20%.
Non dividend income is taxed at 45%
Dividend at 38.1%.
On distribution.
Income subject to normal personal allowances.
Distributions deemed to have suffered tax 45%.
Reclaim if non/basic/higher rate taxpayer.
Taxation of Discretionary Trusts CGT
At outset
Disposal by settlor for CGT purposes unless made on death.
Holdover relief may be claimed on most assets.
Within the trust.
Annual exemption of £5,850, if settlor has created more than 1 trust, shared down to a max of 5.
Trustees liable to CGT at 20% or 28%.
On distribution.
Gains, less any holdover relief, chargeable in full.
Taxation of Discretionary Trusts (relevant property trusts) IHT
At outset.
CLT. Settlor effective rate of 25% Trustee 20%.
Within the trust
Periodic charge based on 20% of 30% - 6%
On distribution
Exit charge based on max 6% less a reduction based on the period held.
