Home | Trust Planning

Trusts offer the benefit of transferring the tax liability on future income and capital gains to the children to utilise their personal annual allowances. Chargeable gains on life policies may also be re-assigned which could avoid a higher rate tax charge. It is important to take advice on the correct trust arrangements for the investments held.

It is also possible in some circumstances to transfer an existing capital gain to the trust, avoiding the need to settle the tax bill on transfer. The capital gain will later be assessed against the beneficiaries or the trustees; however indexation relief will be lost.

Advice to parents will need to take account of the parental settlement rules governing the taxation of gifts to children.

There are basically two types of trust; one in which the children have a right to any income arising from the trust and also own the capital, the other where the distribution of capital and income is at the discretion of the trustees. Accumulation & Maintenance Trusts offer both of the above.

Parental settlement rules assess the income arising from trust assets as the parent’s income which makes it more difficult to benefit from trust planning. However there is the opportunity to gain immediate benefit through making payment directly to the school. “Composite fees” qualify as a disposition for the benefit of a family member and as such the capital is immediately removed from the estate with a potential IHT saving. There are however drawbacks in terms of future potential growth, so advice should be sought in this area.

Trust planning is not suitable in every situation if you would like advice in this area contact our experienced advisers.