Trusts

Trusts for Tax Planning: A Friendly Guide from AHACCOUNTANTS

At AHACCOUNTANTS, we know that navigating the world of trusts can feel overwhelming. However, they can be powerful tools for managing your assets and minimizing tax liabilities. If you live in the Nottingham area, our team is here to help you make the most of trusts as part of your overall tax planning strategy.

What Are Trusts?

Trusts are arrangements that allow individuals (the beneficiaries) to benefit from certain assets, while others (the trustees) manage those assets legally and day-to-day. This setup can provide flexibility and independence from the original owner (the settlor).

• Settlor: The person who creates the trust and transfers assets into it.
• Beneficiary: The individual or group that receives benefits from the trust.
• Trustee: The person or entity responsible for managing the trust.

Trust Registration Service (TRS)

The Trust Registration Service (TRS) is a requirement for many trusts. If you have a trust or a complex estate valued over £2.5 million or involving capital sales exceeding £500,000, it needs to be registered. You must update the register annually, especially when taxable events occur, such as filing income tax returns.

Types of Trusts

Two common types of trusts for individual beneficiaries are:

1. Life Interest Trusts:

1. • Beneficiaries receive income from the trust assets for life or a specified time, while the capital passes to others upon their death.
   • Example: A widow might receive income for life, with the capital going to her children after her passing.

2. Discretionary Trusts:

1. • No specific beneficiary has a guaranteed right to the income; instead, the trustees have the flexibility to decide how to distribute income among a group of potential beneficiaries.

Tax Implications

Trusts have unique tax consequences:

• Inheritance Tax (IHT): Trusts established after March 22, 2006, are subject to a periodic charge every ten years at a maximum rate of 6%. The good news? Assets in a trust generally don’t count as part of a beneficiary’s estate for IHT purposes.
• Capital Gains Tax (CGT): Transferring assets into a trust is treated as a disposal, and any gain may be deferred. Gains realized by trustees are taxed at 20%, with residential property gains taxed at 24%.
• Income Tax: Life interest trusts are taxed at lower rates (7.5% on dividends, 20% on other income), while discretionary trusts face higher rates (38.1% on dividends, 45% on other income).

Why Consider a Trust?

Trusts can be beneficial for various reasons:

• Asset Protection: By transferring assets into a trust, you can remove them from your estate while retaining control as a trustee.
• Family Business Continuity: Transferring shares of a family business into a trust ensures you utilize valuable business property relief.
• Flexibility: Discretionary trusts allow for tailored distribution of benefits among family members, adapting to changing circumstances.
• IHT Planning: Using a discretionary trust can reduce your estate and provide flexibility in deciding who benefits.

How We Can Help

At AHACCOUNTANTS, we understand that each family’s situation is unique. If you’re considering a trust to provide for your family or manage tax efficiently, please reach out to us. We’re here to offer personalized advice and guide you through the intricacies of trusts and tax planning. Let’s work together to secure your family’s future!