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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Thank you reply regarding Life time trust

Resolved Question:

Thank you for your reply regarding Life time trust for my partner.
I did drop you a further question but may have not done it in the correct format as I did not receive a acknowledgement of you receiving it. My first additional question may not be one for you as I asked what other trust could be used instead of a life time gift to avoid implications with Inheritance Tax.
I also asked about a trust my partners late husband left her in his Will giving an annual income and wanted to know what the tax implications would be if she agreed a lump sum payment with the remaindermen to close the trust. Would it be treated as income for the year she received it please?
Submitted: 11 months ago.
Category: Tax
Expert:  TonyTax replied 11 months ago.
In relation to your first question, can you tell me what you are trying to achieve please. Is the trust your partner is a beneficiary of a lifetime trust/interest in possession trust?
Customer: replied 11 months ago.
My partner was married and when her husband died in 2008 she was left a trust with approximately £300k in it and she receives an income for life from that trust. The lump sum ,after her death, does to his daughters from an earlier marriage. My partner is considering asking if agreement could be reached with the daughters to close the trust and share the £300k but she needs to know if this lump sum would be treated as income for that tax year. This answer affects the pair of us as the value of the life interest and her trust would be part of the total assets for I.H.T purposes and would affect what my 2 children would receive from my estate after my partners death.
Thank you for your consideration.
Customer: replied 11 months ago.
Hope this makes matter clear
Expert:  TonyTax replied 11 months ago.
Thanks. Leave this with me while I take a look at it.
Expert:  TonyTax replied 11 months ago.
You can find information on trusts and tax here: https://www.gov.uk/trusts-taxes/overview Trust tax is a huge topic. Some tax practitioners specialise in trust tax. I'm not one of them. I know the basics. You would be well advised to consult a specialist who would listen to what your aims/intentions are and advise you as to whether trusts are appropriate. Trusts are not as tax efficient as they used to be. Since 2006, there have been 6% Inheritance Tax charges at 10 year anniversaries of some trusts and on assets exiting some trusts. You will see that the income tax charges on some trusts' income are high too. Capital Gains are charged to CGT at 28% after the deduction of a small exemption. If the life tenant of an interest in possession trust renounces that interest and the intention is for the trust to be terminated with the assets passing to the remaindermen, the life tenant will be treated as having made a potentially exempt transfer which will fall out of their estate for IHT purposes if they live for seven years after the transfer. There may also be disposals for CGT purposes if the trust does not just consist of cash. If a payment was made to the life tenant by the remaindermen, that payment would reduce the value of the potentially exempt transfer and would not be subject to income tax as if it were income. See the notes here and the legislation here. I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 11 months ago.
Thank you so much for your consideration of our situation regarding " interests in possession trust or life interests" It was most helpful.
In my earlier email to you I did enquire if you could advise an alternative way of giving each other an interest in the property, following the first death, without forming an interest which had severe affects on the final payment of Inheritance Tax on our estates. Is this something you could do?
Customer: replied 11 months ago.
Sorry to trouble you again
Expert:  TonyTax replied 11 months ago.
I cannot think of way of giving an interest without there being IHT implications but I'm not a trust expert.

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