Property owners should review the ownership of their property and other assets during their lifetime to ensure they are maximising the use of tax reliefs available to them.
Whilst a will can be used to express the wishes of an individual upon death, some assets such as property can be transferred into a trust during an individual’s lifetime.
What is a Trust?
A trust is a legal arrangement where a person known as the ‘settlor’, transfers assets to another person(s), ‘the beneficiaries’, under the control of one or more Trustees. The Trustees manage the assets until the beneficiaries are legally prescribed to benefit from such assets.
Non-Financial Benefits of a Trust
Before transferring a property into trust, it is important to understand whether the non-financial implications are suitable to an individual’s circumstances. In most cases, conditions can be set to ensure the wishes of the ‘Settlor’ are upheld when they transfer property or other assets into trust.
Conditions may include:
- Specifying an age a beneficiary must reach before benefiting from the assets held in trust.
- Restricting the sale of the property for a set period.
- Ensuring a family home or holiday home stays available for multiple beneficiaries.
The Taxation of Trusts
Trusts are commonly used as a vehicle to reduce an individual’s exposure to inheritance tax. In transferring assets into trust, there is often other costs and taxes that may be levied but with effective tax planning, the initial costs may outweigh future tax implications. Other taxes may include stamp duty land tax, capital gains tax, income tax and corporation tax. It is therefore important to seek tax advice before transferring assets into trust.
Types of Trust
There are three categories of trusts used in the UK, namely:
- Discretionary Trusts
- Interest in Possession Trusts
- Bare Trusts
Each type of trust has its own tax regime and implications. The type of trust used is dependent upon the requirement of the individuals and the assets they seek to settle (transfer) into the trust.
If you’re considering this step, speak with Ormerod Rutter’s expert wealth planning team, they can talk through your options and recommend the right trust structure for your situation.
Contact us today on hello@ormerodrutter.co.uk or call 01905 777600.
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