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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.
Advantages
  • 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.

To register and download free copies of Tax Insider, and for details of special offers and how to order, visit: www.taxinsider.co.uk

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