Are trusts the answer?

Trusts Trusts (or settlements as they are often called), are sometimes seen as the solution to all tax problems – but, if that ever was the case, it is certainly not true now.

The point of trusts is that they enable you to delay giving money or assets to the eventual owner, and allow you to have some control over how a gift is used. There are two main forms of trust, which are:

Life interest or interest in possession – this gives someone (or a group of people) the use of the trust asset or income for life or for a defined period.

Discretionary trust – this gives the trustees the choice as to who gets the income and capital, and when.

Do you own assets abroad?

Many other countries have some form of death duties, so if you have assets in more than one country you need to look into the possible impact of all sets of tax rules. Many countries also have rules about who can or must inherit from you. See a tax adviser.

The most common reason for trusts is because the intended recipients are still children. In this way parents or grandparents can put money into a trust (or leave it in a will to a trust) for them. That trust can dictate that the income can be used for the children’s upkeep and otherwise saved and paid out, together with the capital, when the children reach a certain age.

Trusts and tax can get quite complicated, and you should get advice on all the implications as both types of trust can be hit by Inheritance Tax, Income Tax, and Capital Gains Tax. Speak to a specialist. You will need a solicitor to set up a trust.

Is your main home outside the UK?
Or are you planning on retiring to the sun?

You may still face a UK inheritance tax bill on all of your assets (whether those assets are based in the UK or abroad) if this is your home country or you have lived in the UK for 17 out of the last 20 tax years. The rules are complicated so, if you are in this position, you should seek advice.