Trusts & Estates Tax Planning

The following are some examples of tax planning, which illustrate just a few of the many ways in which tax can be saved if you get the right advice on trusts and estates at the appropriate time:

‘Interest in Possession trust’ – income tax benefit

A wishes to provide B with an independent income, but without giving B access to the underlying capital because B is addicted to gambling.

If A pays personal tax at the ‘additional rate’ (45%) and he gifts the £15000 income he generates from a share portfolio to B net of tax, B’s net receipt would be just £8250.

Alternatively, A could gift the portfolio into an ‘Interest in Possession Trust’, and mandate the income generated by the trust to B.

B is a basic rate taxpayer, so his net receipt will be £12,000, an improvement of £3750 per annum.

Non domiciled UK residents can reduce their exposure to UK Taxes

Individuals are generally ‘domiciled’ in the country they consider to be their ‘permanent home’, and not necessarily in the country they actually reside in, even if they have lived away from their country of domicile for many years.

Being non UK domiciled can bring significant tax advantages; however new legislation comes into effect from 6th April 2017 which tighten up the rules on ‘deemed domicile’ thereby making it far more difficult for UK residents to benefit

The new rules apply where an individual is not UK domiciled under common law principles, but

  • Has been UK domiciled in the previous 3 years,
  • The individual has a UK domicile of origin, and was born in the UK, and was resident in the UK in one of the two years preceding the year of potential charge
  • Has been UK tax resident for 15 out of the past 20 years

If you are likely to be affected by these changes there is still a window of opportunity to make plans which will protect your overseas assets from IHT for years to come, but you need to act now.