Tax planning for a trust set up to benefit Nephews and Nieces - USERNAME: ellinor
Tax Question: You kindly replied to a question headed 'Using a trust to provide for Nephews & Nieces'. I have loads of questions about this. In the reply you said I would not pay CGT on the cash. What if I put assets other than cash in to trust? Would I pay CGT then? Or the trustees? You say that IHT (inheritance tax, I assume?) would be payable at 20%. When would I have to pay this assuming I had exceeded the £325,000 nil rate band? Or would the nephews and nieces have to pay it (which would be bad as they have no money)? Can they pay say half one year and half the next? And would they have to pay income tax on the income the assets raise? What if the trustees decide that no one would have any benefit from the income in a particular year, would the trustees then have to pay income tax? You say that I would have to make sure I could not benefit. Would I be taken to benefit if I was a trustee? Or if I set up the thing myself and made my partner a trustee? Or if I could decide which nephew/niece was to benefit that year? Would that all be the same for children (e.g. if my brother set up the trust for his children and I added my assets in)? Sorry, so many... Answer: In the reply you said I would not pay CGT on the cash. What if I put assets other than cash in to trust? Would I pay CGT then? Or the trustees? There could be a CGT charge on non cash assets transferred into the trust. However, providing its not a settlor interested trust and its UK resident you should be able to holdover gains on assets settled into the trust (ie defer the gains you make until the trust sells the assets). You say that IHT (inheritance tax, I assume?) would be payable at 20%. When would I have to pay this assuming I had exceeded the £325,000 nil rate band? Or would the nephews and nieces have to pay it (which would be bad as they have no money)? Either can pay depending on your wishes. If you decided to pay any IHT on the gift then the value has to be grossed up. This is because the value of the gift for IHT purposes is the loss to your estate, which includes what you pays over to HMRC as
well as what you pay to the trustees. In terms of payment if the transfer is from 6 April to 30 September the payment date is 30 April in the following year. If it is 1 October to 5 April the due date is
6 months after the end of the month in which the gift was made Can they pay say half one year and half the next? It is possible to elect to pay IHT by ten annual instalments on qualifying assets, for example land and buildings, unquoted shares and certain business assets. For chargeable lifetime transfers this is not possible where the tax is paid by the donor. And would they have to pay income tax on the income the assets raise? What if the trustees decide that no one would have any benefit from the income in a particular year, would the trustees then have to pay income tax? The trustees would still be liable to income tax. You say that I would have to make sure I could not benefit. Would I be taken to benefit if I was a trustee? Or if I set up the thing myself and made my partner a trustee? Or if I could decide which nephew/niece was to benefit that year? Being a trustee should be acceptable providing you could not benefit from the trust assets. Would that all be the same for children (e.g. if my brother set up the trust for his children and I added my assets in)? Yes, but the trust would be settlor interested as far as your Brother was concerned and he could be taxed on income arising from his transfers.
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