sort of trust<\/a> it is. Here is a breakdown of the most common types of trust used for Inheritance Tax purposes.
\n[\/vc_column_text][tm_spacer size=”lg:40″][vc_column_text]<\/p>\nIHT And Discretionary Gift Trusts<\/h3>\n
A Discretionary Trust is the most commonly used trust for IHT purposes. It enables the settlor to pass over their policy to the trustees, who then mange it. At a specified time in the future the trustees will pass it on to the beneficiaries named by the settlor. The trustees have discretion about which of the beneficiaries to pass it on to, how much each will get, and when. This trust should ensure that any money paid out from the life policy does not form part of the settlor\u2019s estate, helping to minimise Inheritance Tax. However, this does not mean that setting up this kind of trust is without cost. Here is what you will have to pay when setting up a discretionary gift trust:<\/p>\n
20% IHT when setting up a trust.<\/h5>\n
When you set up a trust, you will pay a 20% tax charge on the value of assets that are not covered by your personal allowance of \u00a3325,000 that has not been used in the last 7 years
\nIf you set up several trusts, this will be considered when calculating tax when establishing the trust.<\/p>\n
6% IHT every 10 years<\/h5>\n
Every 10 years your assets in trust need to be revalued after which, a 6% charge is levied on the value of the total assets, minus the \u00a3325,000 personal IHT allowance.<\/p>\n
Up to 6% tax on trust\u2019s closure<\/h5>\n
When the trust is closed, or if assets are removed, tax must be paid. This will be based on the most recent valuation, and will be up to 6% and charged on a pro-rata basis. Again, the \u00a3325,000 IHT allowance is deducted. For example, if the estate is worth \u00a3500,000, then \u00a3175,000 taxed.
\n[\/vc_column_text][tm_spacer size=”lg:40″][vc_column_text]<\/p>\n
IHT and Bare Trusts<\/h3>\n
Bare trusts are created to maintain assets left to children in order to ensure they are kept safe until they are adults. These types of trusts do not follow normal inheritance tax rules and assets placed in a bare trust are considered as potentially exempt transfers. The beneficiary is treated as the beneficial owner of the property held in the bare trust.<\/p>\n
This means that you will pay no IHT when establishing the trust, but should you die within seven years of creating it, it will be taxed as part of your estate. All assets placed in the trust can be claimed by the beneficiary when they reach the age of 18 (16 in Scotland). For tax purposes, these are gifts, so there will be no IHT to pay providing you do not die within 7 years of making the gift.
\n[\/vc_column_text][tm_spacer size=”lg:40″][vc_column_text]<\/p>\n
IHT and Loan Trusts<\/h3>\n
Loan trusts are often used to plan their inheritance tax (IHT) without completely giving up access to their capital. By using a loan trust you can access to as much of your original capital as you like, at any time and in any amount, whilst the growth is not included in the estate for IHT purposes. If you do not like the idea of giving away all of your assets, a loan trust allows you to keep control, maintaining access to your capital.
\n[\/vc_column_text][tm_spacer size=”lg:40″][vc_column_text]<\/p>\n
IHT and Discounted Gift Trusts<\/h3>\n
Bare trusts are created to maintain assets left to children in order to ensure they are kept safe until they are adults. These types of trusts do not follow normal inheritance tax rules and assets placed in a bare trust are considered as potentially exempt transfers. The beneficiary is treated as the beneficial owner of the property held in the bare trust.<\/p>\n
This means that you will pay no IHT when establishing the trust, but should you die within seven years of creating it, it will be taxed as part of your estate. All assets placed in the trust can be claimed by the beneficiary when they reach the age of 18 (16 in Scotland). For tax purposes, these are gifts, so there will be no IHT to pay providing you do not die within 7 years of making the gift.[\/vc_column_text][\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":"
[vc_row equal_height=”yes” content_placement=”middle” lg_spacing=”margin_top:30″ gutter=”lg:0″][vc_column md_spacing=”padding_top:500″][vc_row_inner background_color=”custom” lg_spacing=”margin_right:0;margin_left:0;padding_top:20;padding_right:0;padding_bottom:20;padding_left:0″ xs_spacing=”padding_right:35;padding_left:35″][vc_column_inner][tm_heading tag=”div” custom_google_font=”” text=”Inheritance Tax is a tax that is charged on the estate (property, money and possessions) owned by someone, after they die. There is usually no Inheritance Tax to pay if your estate is valued below the \u00a3325,000 threshold or if you leave everything above the \u00a3325,000 threshold to your spouse\/civil partner, charity or a community amateur sports club” css=”.vc_custom_1557835144232{border-bottom-width: 1px !important;padding-top: 25px !important;padding-bottom: 27px !important;border-bottom-color: #d4d2d2 !important;border-bottom-style: dashed !important;}”][tm_spacer size=”lg:30″][vc_column_text]If you leave your home to your children or grandchildren your threshold increases to \u00a3475,000 after which the standard Inheritance Tax rate is 40% and is charged on the part of your estate that\u2019s above the threshold. If your estate (or your share of an estate) is worth less than the threshold, any unused threshold can rollover on to your spouse\u2019s threshold when you die. This means their threshold can be as much as \u00a3950,000. There are certain ways in which people can plan to avoid or reduce the amount of inheritance tax they will owe. One of those ways is to place their assets into trust. [\/vc_column_text][\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row][vc_row equal_height=”yes” content_placement=”middle” gutter=”lg:0″][vc_column custom_border_color=”#dddddd” md_spacing=”border_top:1″][vc_row_inner background_color=”custom” lg_spacing=”margin_right:0;margin_left:0;padding_top:20;padding_right:0;padding_bottom:20;padding_left:0″ xs_spacing=”padding_right:35;padding_left:35″][vc_column_inner][vc_column_text]When you put an asset into a trust, it is often known as \u2018making a settlement\u2019 or \u2018settling property\u2019. For Inheritance Tax purposes, each asset has its own identity meaning each asset can all be dealt with individually with different Inheritance Tax rules applying to each asset. Even though different assets may receive different tax treatment, it is always the total value of all the assets that is used to work out Inheritance Tax thresholds and whether or not Inheritance Tax is due. In many cases, assets in trust won\u2019t count as part of your estate for Inheritance Tax bill purposes. However, this is not straightforward and it is a common misconception that anything placed in trust is automatically exempt from inheritance tax; Some assets are classed as \u2018excluded property\u2019 and Inheritance Tax is not paid on them, even though their value may be considered when calculating the rate of tax incurred by exit charges and 10 year anniversary charges (see below). Types of excluded property can include property situated outside the UK and government securities – known as FOTRA (free of tax to residents abroad). Other assets in trust such as money, shares, houses or land are known as \u2018relevant property\u2019. Inheritance Tax may be charged on these kind of assets, even when held in trust, when they are taken out or a 10 year anniversary occurs. There are certain exceptions though, including when an asset: Was placed in an interest in possession trust before 22 March 2006 Was a \u2018transitional serial interest\u2019 made between 22 March 2006 and 5 October 2008 Put into an interest in possession trust by the terms of a will or the rules of intestacy Set aside for a disabled person Set aside for a bereaved minor Put into an age \u201818 to 25 trust\u2019 [\/vc_column_text][\/vc_column_inner][\/vc_row_inner][\/vc_column][\/vc_row][vc_row equal_height=”yes” content_placement=”middle” gutter=”lg:0″][vc_column custom_border_color=”#dddddd” md_spacing=”border_top:1″][vc_row_inner background_color=”custom” lg_spacing=”margin_right:0;margin_left:0;padding_top:20;padding_right:0;padding_bottom:20;padding_left:0″ xs_spacing=”padding_right:35;padding_left:35″][vc_column_inner][vc_column_text] Working Out Inheritance Tax For most types of trust, IHT is payable when transfers are made that total more than \u00a3325,000. If you calculate the total value of any transfers and any chargeable gifts made in the previous 7 years by the settlor and Inheritance Tax is due on everything above the threshold. You will normally pay IHT at a rate of 20% when setting up a trust. There are some exceptions, such as if you continue to benefit from the assets, but generally, the way that tax is calculated on trusts depend on what sort of trust it is. Here is a breakdown of the most common types of trust used for Inheritance Tax purposes. [\/vc_column_text][tm_spacer size=”lg:40″][vc_column_text] IHT And Discretionary Gift Trusts A Discretionary Trust is the most commonly used trust for IHT purposes. It enables the settlor to pass over their policy to the trustees, who then mange it. At a specified time in the future the trustees will pass it on to the beneficiaries named by the settlor. The trustees have discretion about which of the beneficiaries to pass it on to, how much each will get, and when. This trust should ensure that any money paid out from the life policy does not form part of the settlor\u2019s estate, helping to minimise Inheritance Tax. However, this does not mean that setting up this kind of trust is without cost. Here is what you will have to pay when setting up a discretionary gift trust: 20% IHT when setting up a trust. When you set up a trust, you will pay a 20% tax charge on the value of assets that are not covered by your personal allowance of \u00a3325,000 that has not been used in the last 7 years If you set up several trusts, this will be considered when calculating tax when establishing the trust. 6% IHT every 10 years Every 10 years your assets in trust need to be revalued after which, a 6% charge is levied on the value of the total assets, minus the \u00a3325,000 personal IHT allowance. Up to 6% tax on trust\u2019s closure When the trust is closed, or if assets are removed, tax must be paid. This will be based on the most recent valuation, and will be up to 6% and charged on a pro-rata basis. Again, the \u00a3325,000 IHT allowance is deducted. For example, if the estate is worth \u00a3500,000, then \u00a3175,000 taxed. [\/vc_column_text][tm_spacer size=”lg:40″][vc_column_text] IHT and Bare Trusts Bare trusts are created to maintain assets left to children in order to ensure they are kept safe until they are adults. These types of trusts do not follow normal inheritance tax rules and assets placed in a bare trust are considered as potentially exempt transfers. The beneficiary is treated as the beneficial owner of the property held in the bare trust. This means that you will pay no IHT when establishing the trust, but should you die within seven years of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":[],"_links":{"self":[{"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/pages\/2475"}],"collection":[{"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/comments?post=2475"}],"version-history":[{"count":0,"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/pages\/2475\/revisions"}],"wp:attachment":[{"href":"https:\/\/simply-wills.com\/wp-json\/wp\/v2\/media?parent=2475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}