What is a Trust?
A trust exists where the legal ownership of property, not necessarily real estate, is separate from the beneficial ownership of that property. Trusts are commonly thought of as a tax avoidance vehicle and whilst they can be very useful for mitigating liability to taxes, particularly inheritance tax, it is rarely the sole reason for creating a trust.
You might consider a trust in the following circumstances:
To receive compensation in the event of an injury with income and capital applied for your maintenance;
You are currently non-UK domiciled and will be coming to the UK with a view to becoming UK domiciled but wish to shelter your overseas assets from UK taxes;
To create a fund from which the trustee can provide for and maintain a loved one or dependent after you have died and where you have concerns over the property being in the hands of the loved one or dependent perhaps because they are incapable of managing their finances properly; or
For a charitable purpose.
This list is of course not exhaustive and there may be other circumstances where a trust may be an appropriate vehicle.
Responsibilities of a Trustee
The trustee is responsible for carrying out the terms of the trust deed. In some circumstances there may simply be a discretionary power.
Regardless of the contents of the trust deed the trustee also has compliance responsibilities including:
Maintaining the accounts of the trust;
Submitting a Trust Tax Return;
Completion of form R185 on the distribution of income from a trust; and
Complete form IHT100 on each ten year anniversary of the trust where the trust is in the ‘relevant property regime’. Note that this includes many types of trusts from 22 March 2006 and does not only apply to discretionary trusts.
The trustee is also of course responsible for the payment for any taxes on behalf of the trust.
Core to the submission of tax returns and compliance is the maintenance of accurate trust accounts. Doing so will also help to comply with your requirement to review investments from time to time under Trustee Act 2000 s4(2).
The Ten Year Charge
Trustees should be made aware of the relevant property regime for inheritance tax under which a trust is liable to an inheritance tax charge every 10 years (there is also a charge on the distribution of capital known as an exit charge).
From 22/03/2006 many more trusts are now captured by the relevant property regime. Ten year and exit charges are currently limited to 6% with the exact rate being determined by a complex calculation.
What can Parkers Accountants and Chartered Tax Advisers do for me?
Managing a trust is complex. As Chartered Accountants and Chartered Tax Advisers Parkers are ideally positioned to maintain the financial accounts and tax returns of the trust including forms R185 and IHT100.
Please get in touch today to arrange a no obligation consultation.
Trust Accounting & Taxation