22nd June 2023
So you have decided which trust would work best for your intended beneficiaries based on their spending habits, what are the next steps?
A deed would need to be drawn up by a solicitor stating that you are intending on settling X into trust for the following people (called the beneficiaries) and Y & Z would be managing the assets (trustees) on the beneficiaries behalf. This action creates a trust where the legal and beneficial elements of the asset are split between two classes of individual – legal title is with the trustees while the beneficial entitlement is with the beneficiaries. As such, the beneficiaries are not able to sell the asset or transfer it without the approval of the trustees. Likewise, as the trustees are only concerned with the legal title, they will receive no benefit from the trust asset which is reserved for the beneficiaries.
Once a deed has been drafted the following steps will need to be taken to report the trust to HMRC:
1. Inheritance Tax:
- The value of the assets transferred into the trust would be immediately chargeable to IHT and therefore an IHT account may be needed to be sent to HMRC to report this.
- Tax could be payable if the value settled exceeded your available Nil Rate Band.
- If you survive 7 years from creating the trust, then no additional tax or reduction of your nil rate band available for you estate will occur.
- Every 10 years the assets held are revalued and potentially subject to IHT
- If capital is removed, IHT could be payable in certain circumstances.
2. Trust Register
- At the point the trust is set up the trust will need to be registered with HMRC. This process, if required, produces the trusts UTR and self-assessment record if yearly tax returns are needed.
- If returns were needed each year, the register will need to be kept up to date and any changes will need to be shown or if no changes have occurred, the register confirmed as correct. This is done via the trust registration page on the Gov.co.uk website.
3. Capital gains tax
- Any asset that is settled into trust may need to be reported to HMRC as a disposal of the Settlor and potentially assessable to CGT
- In certain circumstances reliefs can be claimed on the gain arising on the asset and deferred to when the asset is sold.
- If the trust sold an asset, CGT could be payable at either 28% on residential property, or 20% on any other chargeable asset sold. Trusts also only get half of the full annual exemption that an individual receives – for 2023/24 this is £3,000.
- For the trust, any chargeable gains would be reported on the Trust Self-Assessment tax return.
At Thompson Jenner, our team can guide you through all aspects of trusts so that you can create a plan for protecting your assets for generations to come. So get in touch today and let us help make the process smooth, straightforward, and worry-free – Probate and Estate Administration team.
Other articles in this series:
Income Tax implications: The two main types of trusts
What are the two main types of trusts?
Inheritance tax implications for a relevant property trust
What to do when a trust is wound up
