tax on money and assets held in Discretionary Trust

[teresani]

Hi there

Can someone advise

We are thinking of making a Deed of Variation to a Will and setting up a nil rate DIscretionary Trust, which will hold money in a trust account and leave half a house in the Trust. Can someone please advise what is the tax implication on the money held in trust, presumably there is none re the house?

many thanks in anticipation.

[Lee Young]

The solicitor assisting you in this will explain the tax implications of holding assets in the trust - be it exit and perioic charges for IHT purposes on ALL assets in the trust, CGT at 28% on gains over and above the trustees' annual exemption, and income tax at 42.5% on dividends and 50% on all other income with the exception of the first £1,000 taxed at the basic rate bands of 10% or 20%.

[teresani]

thank you for this --- exuse my ignorance--- but in laymans terns does this mean that any interest earned from the money held in trust will be liable to 50% tax. and re the house is this just liable to capital gains when it is sold?
Also what are the entry and exit charges?
in short is there likely to be a signifiicant saving or should we just pay the 40% inheritance tax? we are talking of approx £80.000 cash and half a house worth approx £200,000 this could all be left within the nil rate if put in trust

Thank you for your help

[tax_schmax]

A nil rate band gives an amount under the IHT threshold to a trust, rather than an individual or group of individuals. Because it is under the threshold for IHT to become chargeable, there is no tax to pay.

[teresani]

thank you for this --- but does this mean that any interest earned from the money whilst it is in the trust is not liable to income tax ---- i am confused!

[Lee Young]

IOncome tax is charged at 50% on income received from assets held in trust, excelt for dividends which are taxed at 42.5% . The absence of tax "tax_schmax" is referring to is only inheritance tax.

Whether or not its a good idea depends on the overall estate and why you are doing it. This is something to take face to face advice on.

[teresani]

Thanks for this Lee

sorry to trouble you further---- but--


reasons for wanting to set up the deed of variation and trust are purely to avoid IHT. if poss. The above sums and half house would be later (after passing through next generation if not setting up Trust) be liable to IHT. Your Opinion would be much appreciated advantages and disadvantages?

thanks for your time

[Lee Young]

Whether or not it is needed very much depends on the extent of the estate before the inheritance and after it.

[teresani]

--- all the amount 2000k approx value of house and 80k cash would be liable to IHT if nothing done

[maths]

1. Has the individual who has died a surviving spouse.

2. What is the total size of the deceased's estate.

3. Who is executing the DoV and for whose benefit.