Tax on cessation of trust - USERNAME: jacket
Tax Question:
My mother set up a Settlor-interested Trust in January 1986. The main objective was to benefit from the IHT 7-year rule, and take funds out of her estate. This objective has long ago been achieved. I am considering winding up this trust. My question is whether there are any benefits from keeping it in existence.
This trust pre-dates the Gifts with Reservation rules, brought in later in 1986. Thus, were my mother to place her residence into the trust, I could see that this could have benefit. But that is not going to happen.
It being a Settlor-interested Trust, I guess this could allow my mother to add funds to the trust. But this is not going to happen, either.
So, I can see no compelling reason to keep the trust in existence. Is there something I am missing?
Answer:
Unless the trust is to be used by your Mother or other beneficiaries (who could settle funds subject to the trust deed) then it may well be beneficial to wind up the trust.
Unless the trust holds any assets there wouldn't be any CGT on the winding up. You would need to consider any IHT on the distribution of any cash out of the trust. However the beneficiaries could in any case file a S260 relief claim to defer any IHT on the distribution.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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