{"id":643,"date":"2022-04-14T13:05:00","date_gmt":"2022-04-14T12:05:00","guid":{"rendered":"https:\/\/ctt-group.co.uk\/tax-trust\/?p=643"},"modified":"2022-08-08T10:41:22","modified_gmt":"2022-08-08T09:41:22","slug":"relief-for-both-settlors-and-trustees","status":"publish","type":"post","link":"https:\/\/ctt-group.co.uk\/tax-trust\/relief-for-both-settlors-and-trustees\/","title":{"rendered":"Relief for BOTH Settlors and Trustees"},"content":{"rendered":"
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At CTT, we continuously meet fellow professionals who deal with tax, both directly and indirectly, throughout different periods of their business.<\/p>\n

When we are discussing tax, it is often concerning Trusts. We deal with individuals often involved with trusts from various different viewpoints, most commonly settlors, trustees or beneficiaries.<\/p>\n

What surprises us most at CTT is how individuals make decisions regarding taxation. Many decisions made by settlors and trustees often have consequences concerning taxation. Each move can be the difference between being detrimental to a person\u2019s (or group of persons) wealth or being financially profitable. Therefore, when dealing with Trusts and taxation, one has to be strategic with their strategy being based on knowledge and experience. Below we give two examples of scenarios where taxation could be more costly than maybe it needs to be and how we could offer a potential solution.<\/p>\n

Scenario 1:<\/u><\/strong><\/h4>\n

Many of the Trusts that we manage hold assets that yield an income, like a rental property. With this example, there is more than one way of dealing with the rental income, but not all are beneficial. One way is for trustees to collect the rent and pay it out to the beneficiary. However, this creates a complex labyrinth of HMRC<\/a> returns and complicated reporting for both the trustees and beneficiary. Most importantly, it creates a significant cost burden and therefore inevitable strain on the \u2018net\u2019 income ultimately received.<\/p>\n

However, if income is to be delivered into a trust, the trustees can appoint an income beneficiary. They can then agree a mandate so that the income is paid \u2018from the source\u2019 directly to the beneficiary. This avoids expensive administration costs each year for the trustees, thus increasing the trust\u2019s \u2018net\u2019 yield year on year. We encounter so few trusts that operate this way; it\u2019s a simple yet extremely effective trust management solution in many scenarios.<\/p>\n

Scenario 2:<\/u><\/strong><\/h4>\n

A further example is that a potential settlor of a trust wishes to give away an asset (say a share portfolio) to her children to try and reduce the taxable value of her estate for Inheritance Tax (IHT) purposes. However, the problem is that the shares, which she doesn\u2019t want to sell, are laden with capital gain. She purchased the shares for \u00a310,000, and now they are worth \u00a3100,000. This means that there will be a hefty Capital Gains Tax (CGT) applicable when her children receive the proposed gift. As the shares are gifted, there will be no sales proceeds from which to pay the CGT, which would likely be in excess of \u00a315,000! She has a few options she can proceed with below:<\/p>\n