Different settlors, several NRBs ?

by **cliffordpope** on Thu Jun 23, 2011 9:28 am

My father set up a family discretionary trust on his death. Its class of potential beneficiaries is widely drawn, and basically means any descendants or their spouses.

I am currently setting up a SIPP pension, and have been advised of the advantage of nominating a discretionary trust to receive the ultimate death benefits. I am aware that a transfer from one trust (such as the SIPP) to another retains the donor's start date, so that it has its own 10-year assessment period for possible IHT.

Does that mean that if I nominated the existing trust rather than forming a new one, the pension part of it would have an independant NRB to use when the first 10-year period came due? There would in effect be two trusts within a trust, taxable independently?

Similarly, supposing I willed my own assets into the trust. The trust deeds allow for further settlements by later settlors from any source. Would such a settlement likewise have its own start date, and hence another NRB?

In short, apart from possible administrative complications, can the one trust hold several pots exactly as if held in several separate trusts?

by **tax_schmax** on Thu Jun 23, 2011 11:53 am

No. The original settlement would be one settlement with one nil rate band. It is actually far better to set up trusts at various times to get this extra allowance. You need to be careful that it is not so structured as to appear contrived. There are CGT implications for settling more than one trust so care needs to be taken. A discretionary trust can deal with being segmented but excluding the CGT issue, several settlements can be more tax efficient in the long run.

by **cliffordpope** on Thu Jun 23, 2011 1:44 pm

Sorry, no to which question?

Are you saying a death benefit paid from a SIPP into a discretionary trust does not run from the date of starting the SIPP, but from the date of creating the trust? Have I been misinformed about the rules for one trust making transfers into another one?

Please can you explain the CGT problem - do you mean a pension fund paying out to a bypass trust is taxed on the accumulated increase in value of the invested contributions? I thought pension funds were tax free?

by **cliffordpope** on Thu Jun 23, 2011 1:51 pm

I've just found this thread:

http://www.taxationweb.co.uk/forum/dates-for-start-of-trust-and-xfer-of-ownership-t29644.html

Anthony Nixon's post seems to answer my question - each addition by a different person is a separate settlement having its own 10 year period and its own NRB.
Or have the rules changed?

by **tax_schmax** on Thu Jun 23, 2011 3:11 pm

The rules have not changed to the best of my knowledge but a useful piece of case law from Rysaffe Trustee Co v IRC 2003 confirmed; where separate trusts created on separate days by the same settlor, these can be deemed unrelated.

The thread you link to also confirms this when Lee Young states that in respect of adding to an existing trust

"I suspect it would have been better not to have done this, but rather have a separate trust run along the same lines, but too late now."

by **cliffordpope** on Thu Jun 23, 2011 3:48 pm

Got it now, I think:

There are separate settlements with separate 10-year periods and separate NRBs.
But for other purposes (such as income tax and CGT thresholds) there is only the single original trust, with additions. For annual tax return purposes HMRC would consider it a single trust, but periodically different 10-year assessments would cut in to determine any IHT due.

So the conclusion is that a single trust would be efficient for IHT purposes, but possibly not for income and CG tax? Hence the advice that separate trusts might be better?

by **tax_schmax** on Thu Jun 23, 2011 4:58 pm

Not really. Separate trusts are better for income tax and IHT, there is only a small potential difference between a single trust or a series of trusts for CGT. Separate trusts definitely have their own IHT nil rate band and £1000 starting allowance for income tax. Separate trusts created by the same settlor all share just one CGT allowance of £5300. If the settlor creates 3 trusts the CGT allowance per trust is £1766.66 per trust. If you settle more than 5 trusts, each trust gets an allowance of £1060, even if you have 100 separate trusts. This would be nonsense, but you get my point!

You really do not want to consider using an existing trust. You should forget all about it. You should consider setting up a number of separate pilot trusts with varying perpetuity periods, different trustees, different potential beneficiaries. You would not have to specify that your pension vest into these should you die, they could accept almost any asset and therefore could be quite useful in future. An existing trust might work, but a fresh new one(s) is a better bet.

by **cliffordpope** on Fri Jun 24, 2011 7:38 am

Many thanks.
I've got most of that, i think, apart from "You would not have to specify that your pension vest into these should you die". I thought it went to dependant/beneficiaries unless specified?

by **tax_schmax** on Fri Jun 24, 2011 10:05 am

Not just your pension. You may wish for your pension to go into trust, but equally, you may have accrued other suitable assets by the time you die. You perhaps should still specify that your pension go into a trust, but it need not be exclusively for that.

by **cliffordpope** on Fri Jun 24, 2011 6:52 pm

tax_schmax wrote:Not just your pension. You may wish for your pension to go into trust, but equally, you may have accrued other suitable assets by the time you die. You perhaps should still specify that your pension go into a trust, but it need not be exclusively for that.

Sorry, we seem to be going round in circles here. I thought you were advising the use of separate trusts, now you appear to be saying other assets could be tipped into the same pot as well.

I'm still unclear. Potentially I have four sources of assets:
Original trust settled by my father
SIPP death benefits
My will
My wife's will.

How many trusts do I need?