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Where Taxpayers and Advisers Meet
Tax Insider Tip: ‘Charge’ Trust
28/12/2016, by Tax Insider, Tax Tips - Property Tax
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How does it work?

  • The ‘Discretionary’ trust is created on the first spouse/civil partner’s death by placing his or her share of the property into the trust.
  • At the trustees’ discretion the loan monies are given to the remaining spouse/civil partner as beneficiary. The loan is kept by the trustees as a debt of the estate until ‘called in’ on the death of the second spouse.
  • The surviving spouse will normally have no personal liability for the charge which can be index-linked to take into account future increases in the inheritance tax (IHT) nil rate band (NRB).
  • Alternatively, the charge can be expressed as a proportion of the value of the property calculated periodically thereby benefiting from any capital appreciation, or be made to track a publicly available index of property prices for comparable properties.
  • On the second death the loan from the trust is repaid out of their estate. The NRB is applied to the remainder of the estate assets.
  • The property remains owned by the surviving spouse who benefits from either the capital gains tax Principal Private Residence relief should the property be subsequently sold, or a base cost uplift if retained until death.
  • On the death of the surviving spouse IHT will be payable but reduced by the charge and, if calculated correctly, to below the NRB.

This is a sample tip taken from our 112 page guide:

101 Tax Tips For Landlords 2016/17

About The Author

The above article is taken from 'Tax Insider,' TaxationWeb's own publication specifically for taxpayers and their advisors. 'Tax Insider' is a monthly magazine containing numerous tax tips, articles, questions and answers from leading tax experts, aimed at helping taxpayers to save tax and reduce their liabilities.

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