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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4346
Experience:  FCCA FCMA CGMA ACIS
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I am a trustee of a discretionary trust together with my two

Customer Question

I am a trustee of a discretionary trust together with my two sons. The only asset in the trust is a house which is rented out. The rent is paid to three grandchildren and tax reclaimed but the ten year tax is going to hit us hard.
When the house was put into the trust it's value was below the IHT nil rate band so the 10 year tax was not a problem but with the house price increases and the freeze on the nil rate band the 10 year tax will amount to about £25K or more when it is due in 5 years time.
What steps can be taken to reduce the 10 year tax over the next 5 years?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question which I approach with some trepidation as it has been hanging about for some time. Here is the advice from the Housing and Support Alliance regarding the ten year charge: '10-yearly charges, Capital Gains Tax and Income Tax There are also ten-yearly inheritance tax charges on the anniversary of the trust paid currently at 6% of the value over the £285,000 limit. During the life of the trust, tax on income and capital gains arising in the trust is paid at 40%. None of the beneficiaries are classed as having an absolute Interest in the trust and if they are on Income Support tax paid may be recoverable.' So you see it all depends on the house value at the ten year point and anything over 285K will incur a levy of 6% so the situation may not be quite as bad as you think. Depending upon the structure of the trust, for example what happens when the grand children come of age, it may be possible to dissolve the trust. I would recommend that you seek the advice of a trusted, local solicitor in this matter to see what would be the best course of action. I do hope that I have shed some light on this problem.