Inheritance tax: a trust could reduce tax payable and benefit from a “number of tax advantages” | Personal finance | Finance

Considered one of the UK’s most hated taxes, more and more people are being made to pay it as the threshold has been frozen at £325,000 since 2009. Even more Britons are set to pay it over the next few years. years because the threshold will remain frozen until 2026. That said, some may be able to increase the threshold. Britons are often told that planning is the backbone of an effective plan to minimize inheritance tax.

Jenny Holt, Managing Director of Client Savings and Investments at Standard Life, said: “Using a trust can allow you to support your children and grandchildren while you are still here, while offering a number of tax advantages.

“As a trustee, you retain an element of control over the funds and how and when they are paid out, while gifts made to the trust can reduce your estate for inheritance tax.”

A trust is a legal arrangement in which a person can give money, property or investments to someone else so that they can look after them for the benefit of another person.

How a trust is taxed depends on the type of trust it is.

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Discretionary gifting trusts are the most popular type and this is where a person gives their assets to the trust and a person can specify how they want them to be used for the beneficiaries and more importantly, trustees are free to act at their own discretion.

Ms Holt added: ‘Using a discretionary trust gives grandparents the greatest flexibility and control, but the taxation is higher and more complex.’

For this trust, people will normally pay inheritance tax at a rate of 20% when setting up a trust if it exceeds the zero rate band of £325,000.

In addition to the tax paid when the trust is created, there is also a tax charge on the trust assets every 10 years thereafter.


This is levied on the value of the assets at the time, after deduction of the £325,000 inheritance tax allowance.

After that, a six percent charge is levied on the total asset value, less than the abatement.

Finally, inheritance tax will have to be paid again when the trust is closed or if assets are removed.

There are several types of trusts and the four most common types are bare trusts, loan trusts and discounted gift trusts.

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However, investment income from assets remains in the trust and does not form part of a person’s estate for tax purposes.

Discounted gift trusts are typically used to hold insurance bonds and allow a person to receive income of up to five percent each year,

This sits outside of a person’s estate and is transferred to beneficiaries upon their death.

Some trusts will need to be registered with Her Majesty’s Revenue and Customs (HMRC) in order to comply with anti-money laundering requirements or they will become subject to further taxes.

Ms Holt explained that as trust tax can be quite complicated, Britons should contact legal experts to explore their options when setting up a trust.

She said: “‘There are many tax-efficient ways to support your loved ones and being knowledgeable about the options depending on your family’s situation will put you in the best position to get the most out of your money and their future. . However, this is a complex area.

“You really should seek financial advice if you are considering using a trust to help you choose the right option for your situation.”

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