Flashcards in Chapter Eleven - Trusts Deck (14)
When do you call a Trust, Bare and Absolute?
Bare Trust is for an under 18, and Absolute is for over 18
What is the Income Tax rates for a Bare Trust? and can they use allowances?
This is taxed on the beneficiary and yes they can use allowances
Who is taxed when the parent is the settlor?
The parent is taxed on any income over £100 per annum when they are the settlor and the minor is under 18
What is the CGT rates for Bare Trusts? (For Trustees, Settlor and Beneficiary)
No tax on the Trustees
It is a disposal for Settlor, and they can use Holdover Relief if disposing a business asset
Beneficiary liable to CGT at normal rates 10%/20% or 18%/28% for
What are the IHT tax implications (For Trustees, Settlor and Beneficiary)
No tax on the Trustees
PET for settlor until survive 7 years
Beneficiary estate on their death
What are the income tax rates for an Interest in Possession Trust? (For Trustees, Settlor and Beneficiary)
Trustees pay basic rate (20% or 7.5%) with no use of allowances
Beneficiary pays tax at their marginal rate with use of allowances, then reduce basic rate tax already paid
Settlor pays no tax unless they have an interest in Trust
How are expenses deducted on a Interest in Possession Trust?
Gross income less basic rate tax less expenses then equals the net income that pays out to the beneficiary
What are the CGT rates for an Interest in Possession and Discretionary Trust?
The Trustees pay CGT at 20% or 28% for property. The Annual Exemption is £6,150 split across the Trusts, with a minimi, of £1,230
What are the IHT rates for an Interest in Possession Trust, pre and post 22 March 2006?
Pre 2006, the asset is considered a PET and Post 2006, the asset is considered a CLT
How do you calculate the periodic charge?
This is 6% of the Trust Value over the NRB, every 10 years
How do you calculate the exit charge?
Periodic charge / value at 10 yr anniversary x 100% = Effective Rate
Beneficiary Payment * Effective Rate * Years *4 since last 10 year anniversary / 40
What are the income tax rates on a Discretionary Trust?
The first £1,000 paid at Basic Rate (20% or 7.5%) and then Trustees pay 45% on interest and 38.1% dividends, when paid out to Beneficiarys they will owe additional 6.9% on dividends.
Beneficiary can reclaim if non, BR or HR tax payer
How are expenses deducted for a Discretionary Trust?
Gross Income less Gross Expense (Expense / 0.8). Then first £1,000 at 20%/7.5%, Gross Expense at 20% and then remaning amount at 45%