E) Trusts Flashcards
A) Types of Trusts (2)
A Trust is an arrangements where trustees look after assets for a beneficiary. They pay tax on profits.
They can be created during a lifetime or created by a will.
Fixed Trust: The Trust document sets out beneficiaries and how income and capital are dealt with.
Discretionary Trust: Trust document sets out who beneficiaries are, but gives trustees freedom to manage the assets. The beneficiary does not have a RIGHT to receive any benefit from the trust unless trustees make an appointment.
B) Taxation of Trusts - Income Tax
If beneficiary receives income from the trust, the beneficiary is taxed directly. If under 18 and unmarried and settlor is alive, settlor is assed on the income.
If the assets generate income, the trustees are liable to IT at standard rate 20%. There are no tax credit or allowances. When the beneficiary receives the income, they are taxed under Sch D IV, but receive a credit for tax paid.
If income from Disrectionary trust is not distributed within 18 months, there is a further surcharge of 20% of the gross income.
Expenses are not deductable for IT, but are for surcharge
B) Trusts - CGT
When Settlor transfers assets to Trust, there is a disposal for CGT (Not on death).
If transfer is in life, it’s on the base cost of assets/
In transfer is in death, is on MV of assets
Trustees liable on gains of assets in the trust on disposal
- When beneficiaries become absolutly entitled to them
- When assets in trust are disposed to third party
- When life interest in trust terminates, but property remains in trust.
B) Trusts - CAT
No CAT as no beneficiary is entitled to assets at the time.
There is CAT implication on termination of of life tenant interest.
B) Trusts - Stamp Duty
Due on transfer of asset to the trust EXCEPT on death of donor
B) Trusts- Discretionary Trust Tax
Initial Levy and Annual Levy
- Initial Levy: One off charge at 6% within 4 months of the latest (Date property becomes subject to trust, death of settlor or 21st birthday of youngest principle
- Refund of Initial Levy - If trust is wound up in 5 years
- Annual Levy: 1% at 31 Dec in the year after the initial levy was charged. Paid within 3 months (March 31)
