Trusts – Not just for the wealthy
A recent report has shown that half of the £4.7 billion Inheritance Tax (IHT) paid in the UK during 2015/16 was paid by families living in the South East and London. Many people are unaware that trusts can be an effective vehicle for reducing the amount of IHT payable and for asset protection though the generations. The Private Client team at Brachers consider them to be an important part of tax planning for our clients.
Following the death of the Duke of Westminster, there has been some debate in the press over the use of trusts to avoid paying Inheritance Tax (IHT). Some commentators assert that trusts are only for the wealthy and purely tax avoidance, but with rising property prices pushing more of us into the IHT paying bracket, is this really the case?
Trusts have been around for generations and the use of trusts for family wealth is not a new concept.
Trusts are highlighted when high profile cases are reported and tax savings are questioned. This in turn leads to speculation that the tax treatment of trusts should change.
Although tax aspects are considered when creating family trusts, this is not the only reason for their use. Trusts are an effective way of protecting family assets and ensuring that these pass through the generations. This is particularly relevant where young children are involved or there are family members who are unable to manage their own financial affairs.
Trust structures have been an important feature for families particularly where large family estates are concerned. These provide a level of security and continuity over the management of the trust assets. There have been various reforms to the tax treatment of trusts over the years. Certain trusts which fall under the relevant property regime for IHT purposes benefit from their own nil rate band IHT allowance, currently £325,000. Trusts have taken a hit over the years from punitive tax reform but are still a useful mechanism for legally passing on wealth to other generations.
Trusts are not just for the wealthy. They can be used to determine the ownership of property and we have seen an increase in trusts created to protect children from first and subsequent marriages. In these cases, it is important for families to have someone independent acting in the best interest of all of the parties.
If you would like to discuss trusts in more detail, or any aspect of tax or succession planning, please do not hesitate to contact Justine Sloover.