Trusts

Question 1

CGT - Bare

Answer 1

Gift to trust is disposal
Holdover relief available (if business asset)
Beneficiary taxable at own rate on disposals by trustees
Can us annual exemption
Beneficiary must include gain on self assessment and pay tax due

Question 2

CGT - Vulnerable

Answer 2

Trustees charged CGT due as if on beneficiary

Question 3

CGT - interest in possession

Answer 3

Gift is a disposal
CGT may be payable by settlor but holdover relief available (unless settlor interested trust, settlor would pay tax and claim back from trustees)
Trustees pay tax on disposals at 20% (28 if non PPR property)
After trust exemption (6000, or shared between multiple trusts)

Question 4

CGT - Discretionary Trust

Answer 4

Gift in disposal

Same as IIP trust

Question 5

IHT Bare

Answer 5

Transfer to Bare or disabled trust PET
Value included in beneficiaries estate for iht purposes
Beneficiary liable for any iht payable

Question 6

IHT - interest in possession trust

Answer 6

Pre 22 March 2006 = PET
7 year rule
If not 7 yrs then trustees liable for iht in excess of NRB
Trust assets regarded as belonging to beneficiaries/ divided equally
Value forms part of their estate for iht purposes

Post 22 March 2006 = CLT
Iht treatment same as discretionary trust
Trust subject to periodic and exit charges UNLESS
a disabled trust or IIP created on death by Will or intestacy

Question 7

IHT - Discretionary trust

Answer 7

CLT
Chargeable at 20% over NRB
No beneficiary has a right to income or capital
Nothing to include in the value of their estate on death

IHT periodic charge made on 10th anniversary of the creation of a discretionary trust

6% of the excess value of the trust over the NRB
Payable by the trustees

IHT Exit charge
payable every time a capital distribution made to a beneficiary
Based on number of quarters since last periodic charge
Distribution X #quarters over 40
AND
Effective rate at the previous 10 year periodic charge (effective rate % using last 10 year values=
(tax charged/fund value) X 100

Question 8

IHT - discretionary

Periodic and Exit Charge

Answer 8

IHT periodic charge made on 10th anniversary of the creation of a discretionary trust

6% of the excess value of the trust over the NRB
Payable by the trustees

IHT Exit charge
payable every time a capital distribution made to a beneficiary
Based on number of quarters since last periodic charge
Distribution X #quarters over 40
AND
Effective rate at the previous 10 year periodic charge (effective rate % using last 10 year values=
(tax charged/fund value) X 100

Question 9

IHT - gifts with reservation

Answer 9

Given away but retain an interest
GWR disappears as soon as donor pays market rent or stops using
Paying less than market value reduces proportionately
On death GWR added back to donor’s estate

Question 10

IHT - Pre Owned Asset Tax (POAT)

Answer 10

Is an income tax NOT IHT charge
Converts benefit of an asset formerly owned into cash equivalent (no tax if less than 5k)
Which is added to income
If full market value paid no POAT
Avoid POAT if elect asset as GWR (liable to IHT), done via iht500 form submitted 31st Jan following tax yr in which arises

Question 11

IHT Planning

Answer 11

Make valid Will - Keep up to date
Est LPA not sole attorney
Use exemptions and reliefs

Question 12

Circumstances trust can be ended by B

Answer 12

Saunders and Vautier

Ascertain all B
Age 18 and sane
Agree all
Further B possibility none

Question 13

Statutory Obligations for Managing Investments

Answer 13

Std inv criteria - suitability and diversification 
Review / vary
Professional advice if required 
Invest as own / max returns 
Don't take undue risk
Safeguard capital 
Take account of tax positions of trust and B
Invest cash as comes in
Account for all interests 
Avoid conflict 
Act in best interest 
No personal gain