Tax implications on setting up Trusts
How Tiffin Green can help
Working with a solicitor of your choice (or we can offer recommendations) to develop a trust that suits your needs, Tiffin Green provides advice on the tax implications of trusts and completion of trust tax returns.
More information about trusts can be found from our factsheet, which briefly covers some consequences and aspects of trusts. If you are interested in providing for your family through the use of trusts please contact us.
We will be more than happy to provide you with additional information and assistance.
What are trusts?
Trusts are a long established mechanism, which allows individuals to benefit from the assets without assuming the legal ownership of those assets so that others (the Trustees) have day-to-day control over the assets. A trust can be extremely flexible and have an existence totally independent of the person who established it and those who benefit from it.
A person who transfers property into a trust is called a settlor. Persons who enjoy income or capital from a trust are called beneficiaries.
Trusts are separate persons for UK tax purposes and have specific rules for all the main taxes. There is also a range of anti-avoidance measures aimed at preventing exploitation of potential tax benefits.
Types of trusts
There are two basic types of trust in regular use:
- Life interest trusts (sometimes referred to as interest in possession trusts)
Life interest trusts
A life interest trust has the following features:
- A nominated beneficiary (the life tenant) has an interest in the income from the assets in the trust or has the use of trust assets. This right may be for life or some shorter period (perhaps to a certain age)
- The capital may pass onto another beneficiary or beneficiaries.
A typical example is where the widow is left the income for life and on her death the capital passes to the children.
A discretionary trust has the following features:
- No beneficiary is entitled to the income as of right
- The settlor gives the trustees discretion to pay the income to one, some or all of a nominated class of possible beneficiaries
- Income can be retained by the trustees for up to 21 years
Capital can be gifted to nominated individuals or to a class of beneficiaries at the discretion of the trustees.