IN YOUR INTEREST
THE INVESTOR
|
19
Balance sheet
As family structures become more
complicated the importance of trusts continues to grow.
But as rules change the need to be up to date to avoid any
future complications is an obvious necessity.
Divorce is one of the
most common threats
to families whowant
to pass onmoney
structures that will be used in future.‘But one
thing is for sure – tax changes will never make
them redundant,’ he says.
Another advantage of the trust structure
is speed as they can pay out immediately after
the settlor, the person who set them up, dies
– in contrast to wills, where delays of several
months are commonplace. However, there are
disadvantages. In France, the Loi de Finances
Recti cative 2011 – the French equivalent of
our budget – a ected French resident settlors
or bene ciaries and French assets of UK
trusts, and may well mean that some assets
are subject to wealth taxes in France.
In the UK, meanwhile, tax reforms
expected next year (see above) could
confuse and put o some potential settlors.
The changes will also reduce the tax savings
available in some cases.Trusts need to be
reviewed regularly to ensure that they
conform to existing tax law and to prevent
mistakes being made. Even a change as simple
as adding the name of a new grandchild to
the list of bene ciaries can trigger a series
of unintended consequences.There are,
however, a variety of ways of carrying out the
settlor’s wishes through trusts; in this case,
the grandchild can be included without his or
her name being stated, but you should ensure
you take the appropriate advice.
1
TYPES OF TRUST
Two of the simplest and most common types of trust are seven-year trusts and loan trusts.They are set up
in the ways that their names suggest. Seven-year trusts are established by the same settlor every seven
years to take advantage of rules which extinguish a potential Inheritance Tax (IHT) liability seven years after
a transfer of that asset has been made.With a loan
trust, the settlor creates a trust and lends assets to
it, with any profits generated staying in the trust
and, therefore, outside the settlor’s IHT net.
These and other kinds of trusts are still being set
up, but new rules are being drafted by the UK
government that will reduce their attractiveness for
some people.The new rules – with the clumsy title
of the ‘settlement nil-rate band’ – will mean that
many trusts will offer less IHT protection.
In effect, HM Revenue & Customs is proposing
that individuals have a lifetime allowance on how
much they could transfer tax-free into trusts – this
lifetime allowance would be set at £325,000 (the
same level as the IHT ‘nil-rate band’ on the estates
of individuals when they die).The move is part of
the current political agenda to increase tax
transparency.
Trust structures could still work for many people,
but calculations should be performed in advance to
estimate both any likely tax charges and the overall
tax benefit that the trusts produce. Dominic Potier
of solicitors Wedlake Bell says: ‘It depends on the
client and on whether they are prepared to take any
tax hits.’ Tony Müdd says that more tax will be paid
as a result of this change, but adds: ‘Trusts will
always be worthwhile.’
Trusts are not regulated by the Financial Conduct Authority
or the Prudential Regulation Authority
