Since a change in the legislation was introduced in 2006, there has been a demise in the use of UK trusts, largely down to the high rates of income and capital taxes. However they still remain an effective way of ensuring that family monies or assets are passed down through generations and/or that younger generations’ education is provided for.
If you are a Trustee, you should know that, not only do you have a legal requirement to ensure that the trust remains compliant and within the law but you also have a legal obligation to act in the best interest of the Trusts beneficiaries. This will include making sure the taxation and compliance of the Trust is in good order.
Trusts, like individual's, are required to complete annual self assessment tax returns in order to report income and expenses. Trustees must also provide statements of income distributions paid, to all beneficiaries.
Discretionary trusts often need to pay a higher rate of tax than most individuals. This effectively reduces the amount of money received by those benefitting from the trust (the beneficiaries). British Taxpayers can ensure that not only will the trust pay the lowest amount of tax possible, any tax repayment due to the beneficiaries is claimed back within the time limits required.
If the Trust has many assets, bank accounts and income types, the reporting may be onerous. We have many years’ experience in the preparation of Trust accounts and can account for the Trust monthly, quarterly or annually as required.
Inheritance Tax Issues
In addition to the annual compliance, Trusts falling within the relevant property regime will have a reporting requirement every 10 years and when capital monies or assets are distributed out of the trust. Both of these events may result in Inheritance Tax being payable but in any case, are reportable events and the correct paperwork must be completed and filed with HMRC. From March 2006 most existing trusts, and all new trusts created after that date are within the relevant property regime.
Our advisers who specialise in Inheritance Tax planning can help you plan for these events by considering the timings of distributions and reviewing you overall objectives.
Under recent legislation, when non UK domiciled individuals are resident in the UK for 15 out of the last 20 years they acquire a UK deemed domicile. This means that, on death, their worldwide assets would fall within the UK’s Inheritance Tax charge. For individuals domiciled outside of the UK, a non UK trust may be a highly effective method of keeping non UK property outside the scope of UK inheritance tax.
By creating a non UK trust before you become deemed UK domicile, your non UK property can be protected. Whilst there are many anti avoidance rules to stop individuals moving income and capital gains outside of the UK, these need to be understood and considered in order for this level of planning to be effective and well within the boundaries of the legislation. British Taxpayers are well placed to guide you through this. We have directors who have achieved the Advanced Certificate in International Taxation qualification from the Society of Trust and Estate Practitioners (STEP)
If you have an existing non UK trust, and are looking for advice on changes in legislation – perhaps your offshore structure owns UK property, then we can certainly advise.
For any queries you have on Trusts or Inheritance Tax please contact Claire Spinks.