#13769 - Trusts For Young People - Private Client

Trusts for young people Do the reading on GILTS to get a good understanding... In short = fixed interest loan from UK Government 1) Old accumulation and maintenance trusts Old scheme a) Benefited people under the age of 25 at the time of creation b) Held assets until beneficiaries reached 25 c) Transfers into these settlements were PETs rather than LCTs When was old scheme replaced? 22nd March 2006 No longer possible to create new settlements within this scheme 6th April 2008 All existing accumulation and maintenance settlements lost their privileged status, thereby falling into the relevant property regime unless: a) They already satisfied the new requirements for a bereaved minor's trust or a young person's trust b) They were capable of amendment to bring them within the new requirements 2) Trusts for bereaved minors - s.71A IHTA 1984 What deaths does this apply to? 1) Deaths occurring on/after 22nd March 2006; and 2) The death is the death of: a) A parent of the bereaved minor; or b) A grandparent of the bereaved minor where: - s.71A IHTA 1) The trust is created by intestacy; and 2) The grandchild stands in for a deceased child under the statutory trusts in the intestacy rules Requirements 1) The trust must be created by will or on intestacy for the deceased's own child (the bereaved minor); and 2) The bereaved minor must, on or before attaining 18, become entitled to; and a) The settled property (capital); b) Any income arising from it; and c) Any income that has already arisen and been accumulated 3) While the bereaved minor is living and under 18: a) Any capital applied must be applied for the benefit of the bereaved minor; and b) The bereaved minor must be entitled to all the income from the settled property or no income may be applied for any other person You can interpret this advancing of capital liberally (s.71(4) IHTA 1984) as long as you comply with s.32 TA 1925 * E.g. Can advance funds to a parent of beneficiary so they can apply it for bereaved minor's benefit 3) Taxation of trusts for bereaved minors - s.71A IHTA 1984 Creation inter vivos Cannot be created inter vivos Creation on death of parent / grandparent under special intestacy rules Inheritance tax Normal death estate rules apply * Cumulative total a? NRB * Possible 2 x NRB as TNRB is available on death estate * Death time exemptions * Tax at 40% Capital gains tax None on death Income tax No impact During lifetime of trust Inheritance tax Assets being held in the trust No tax before beneficiary is aged 18 Capital gains tax Assets being held in the trust No tax as no distribution Income tax Non-dividend income a? Taxed at 45% Dividend income a? Taxed at 37.5% End of trust a? Distribution of capital to bereaved minor on or before reaches age of 18 Inheritance tax No tax as long as distribution is on or before beneficiary is aged 18 Capital gains tax a) Is a deemed chargeable disposal by trustees (s.71 TCGA) unless is disposing of: * Cash; or * Treasury shares / govt. bonds Trustee's deemed chargeable disposal rules apply * Calculate gain * Minus trustee's AE (PS5,500) * Reduced gain x 0.28 b) Holdover relief: * Consent of both trustees and beneficiary needed s.165 a? Available for business assets s.260 a? Available despite there being no simultaneous inheritance tax charge under exception in s.260(2)(da) TCGA 1992 Income tax No impact