So picking some figures out of the air
1. Initial amount put in X years ago by settelor
2. Increased to due to investment
As I understand what your saying is the "income" part of that £400,000 and would that be charged under inheritance tax. If that is the case could you use the person's inheritance tax relief currently at £325,000 so actually you end up paying 40% on £75,000 so £30,000 of tax and there is no tax to pay on the principle £500,000 ?
The trust is a personal, dynastic, irrevokable, discretionary trust so not charitable.
I'm not understanding the distinction between income and capital. How are you defining income, I think your describing a dispersement that is made to a beneficiary and that itself creates a tax event and is an income for the beneficiary.
What is the catch here as if you can put money into a trust before you die, then assign it to one or more people, they can then dissolve the trust at some later date and pay no inheritance tax or similar tax wouldn't everyone be doing this. Is there some time lapse or some other restriction.
No by income I refer to income received into the trusty eg from investments. I merely added that bit about charities to cover that aspect.
You are perfectly correct in your tax interpretation of income distributed by a trust.
The treatment of assets within a trust is governed by the Trust Deed and should trustees stray outside the terms of the deed then that constitutes a breach of trust for which the penalties can be severe. Properly drawn up deeds preclude the process you are suggesting for were indeed that not so everybody would be jumping on that particular band wagon!
Ok so essentially what I think your saying is that yes it's possible to dissolve the trust and disperse the funds and there are no inherent tax's involved because people don't do this generally and it would depend on the wording of the trust deeds if it was at all possible ?