Taxation of Trusts

Part 1 - The Basics Legal Background

This Taxation of Trusts course covers the following from a legal perspective:

• What is a trust?

• The role of the settlor and trustee

• Overview of discretionary, interest in possession (IIP) and bare trusts, including why they are used

• Key advantages of charitable trusts

CGT of Trusts

• Tax charges on creation

• Disposals by trustees to beneficiaries or third parties

• Importance of holdover relief

• Clogged losses

Inheritance Tax of Trusts

• The impact of the Finance Act (FA) 2006 changes on the creation of trusts

• ‘Qualifying’ IIP trusts are included in trust taxation courses:

• Definition

• Appointment of assets to beneficiaries:

• On death

• While the life tenant is alive

Non-qualifying IIP and discretionary trusts:

• Appointment of assets to beneficiaries:

• Exit charges and 10-year charges (overview only)

IHT-efficient trusts for children:

• Trust for a Bereaved Minor

• 18-25 trusts

Form IHT 100 reporting

Income Tax Charges on Trustees and Beneficiaries

• Investigate the different rules and tax rates for IIP and discretionary trusts

• Importance of the R185 form

• Availability of personal savings allowance, etc.

• ‘Tax pool’ issues for discretionary trustees:

• How making distributions may increase the trustees’ tax charge

New rules for low-income trusts from 2024/25

Impact of increasing tax rates for dividends (2026/27) and savings and property income (2027/28)

Mandated trust income

Part 2 - Understanding More Complex Issues

CGT of Trusts

• Part 2 of this taxation of trusts course considers using lifetime trusts to defer CGT charges: Case study on the CGT when winding up a trust

Inheritance Tax of Trusts

• Transferable nil rate band (NRB) and impact on Will trusts

• Impact of trusts on the availability of Residence NRB

• ‘Pilot trust’ structures:

• What they are

• F(No.2)A 2015 changes to the tax rules

Income Tax charges on Trustees and Beneficiaries

• ‘Tax pool’ issues for discretionary trustees:

• Use of revocable interests in possession

Trustee residential landlords:

• The different rules on the restriction of finance costs for IIP and discretionary trusts

• The impact of an increase in property income tax rates from 2027/28 is covered in estate and trust tax courses

Other Trusts

• Trusts for vulnerable beneficiaries

• Settlor-interested trusts

Investment Bonds Held in Trust

• Brief overview of investment bonds: Why invest in them?

• Tax rates applying

Who is liable for any tax charge on bonds held in trust?

• Settlor, trustees, beneficiary or no one, depending on circumstances

‘Gift and loan’ trusts:

• What they are

• How they are used in IHT planning

Discounted gift trusts:

• What they are

• Why are they less useful than in the past for IHT planning?

Practical problems and tax traps:

• Case study on the appropriateness of an investment bond for trustees of an IIP trust concludes Redcliffe's courses on trusts

Training Objectives

On completion of Part 1, participants attending trust taxation courses at Redcliffe Training will have developed a sound working knowledge of:

• The different types of trust and the reasons for creating them

• Technical terminology

• Powers and duties of trustees, including: Appointment of agents by trustees

• Trustees’ investment powers

The CGT position when assets enter or leave a trust

The Inheritance Tax position when assets enter or leave a trust

The Income Tax position of trustees

The Income Tax position of beneficiaries receiving income

Part 2 develops participants’ understanding of how tax issues affect asset-holding strategies involving UK trusts, including:

• How Will trusts holding assets can still be useful in the era of transferable nil rate band

• ‘Pilot trust’ structures and why they are now less effective

• Using trusts to mitigate CGT charges

• Income tax issues for trustee residential landlords

• Use of revocable interest in possessions by discretionary trustees

• The tax advantages of ‘vulnerable beneficiary’ trusts

• The tax charges arising on settlor-interested trusts

• This taxation of trusts course covers strategies involving investment bonds: Gift and loan trusts

• Discounted gift trusts

Training Course Summary

Part 1 of this Taxation of Trusts course introduces delegates to the main types of UK trusts and their associated tax issues. No previous knowledge of trusts or UK tax is necessary. Training will benefit those with limited experience and those requiring a refresher in this area. The differences between English and Scottish law are covered in sessions where appropriate.

Part 2 builds on the delegates' basic knowledge of UK tax and trusts by investigating more complex areas. This includes various scenarios where trusts can be used in tax planning.

Estate and trust tax courses include short case studies to demonstrate the practicalities involved alongside numerical examples.

Those without a good working knowledge of both trusts and UK tax should attend Part 1 of the course before Part 2.