Note: The following content is a sample from the Adv... website and is provided here to show the structure, level...

Transcription

Note: The following content is a sample from the Adv DipFA course
website and is provided here to show the structure, level and
weekly work required for the programme.
Week 10 study guide
Learning outcomes
By the end of this topic you should be able to: demonstrate an understanding of tax
compliance for trusts.
This topic will cover:
•
•
•
•
taxation of trusts – in particular capital gains tax and inheritance tax (including
lifetime transfers and reliefs);
the tax trust regime;
residence and domicile;
capital taxation and penalties.
We will look at:
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•
the relevant property trust regime;
the tax implications of a transfer into a trust by a settlor;
the tax treatment of assets within a trust fund;
legal obligations of trustees in relation to taxation.
8.1 Relevant property trust regime
The capital gains tax (CGT) and inheritance tax (IHT) treatment of a trust will depend on
whether it is a relevant property trust.
A relevant property trust is generally a discretionary trust or any other type of trust created
on or after 22 March 2006. However, the following are exceptions:
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•
•
Transitional serial interest trust. The interest under a pre-March 2006 interest in
possession trust was changed before 6 October 2008.
Immediate post-death interest trust. An interest in possession trust is created with
immediate effect under the terms of a will
Trust for a disabled person. A disabled person’s interest trust is where more than
half of the assets in the trust are applied for the benefit of a disabled person. It also
applies to a trust set up either on or after 22 March 2006 for their own benefit by a
person who is suffering from a condition which can be expected to lead to them
becoming disabled.
© ifs School of Finance 2012
1
•
•
Trust for a bereaved minor. This is a trust for a person aged under 18 and at least
one of whose parents / legal guardians or step-parents has died.
Age 18-25 trust. This is a discretionary trust set up under the terms of a will or
intestacy of a deceased parent or step-parent where property is held in trust for
someone aged over 18 and under 25. As we shall see below, an accumulation and
maintenance trust set up before 22 March 2006 may also, in certain situations,
become an 18-25 trust.
Activity 1: Tax avoidance and evasion
The use of trusts for tax avoidance (and sometimes evasion) is very topical.
1. Read the following webpage from Tax Justice Network:
http://taxjustice.blogspot.co.uk/2009/07/in-trusts-we-trust.html
2. Using this and other research, write a 500-word article on how people are using
trusts to avoid and even evade tax.
3. Post your article on the forum and read the articles posted by other students. Where
you feel it will be useful for other students, also post any websites or other sources
that you have found particularly useful.
8.2 Transfers into trusts
8.2.1 Capital gains tax
There is, of course, no CGT on any gains made (up to the point of death) on assets in
someone’s estate. The assets are revalued at the date of death. If assets are transferred
from the estate into a trust, CGT could only arise on gains made after death.
A lifetime transfer into a trust is, however, a disposal for CGT.
It may be possible, in some cases, to claim hold-over relief. Hold-over relief means that the
transferor does not pay the tax and any gain is transferred with the assets. For example, if
someone purchases shares for £30,000 and later, when they have risen in value to £50,000,
transfers them into a discretionary trust, the person making the transfer can either:
•
•
declare a gain of £20,000; or
apply for hold-over relief, in which case the trust will receive the shares with an
acquisition value of £30,000.
Hold-over relief is available on certain gifts of business assets and agricultural property. It is
also available on transfers into interest in possession trusts (if created on or after 22 March
2006) and all discretionary trusts.
Hold-over relief is not available on transfers into a bare trust, nor any trust where the
settlor, the settlor’s spouse, civil partner or minor child / stepchild benefits or may benefit.
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8.2.1.1 Public (charitable) purpose trusts
A transfer into a public purpose trust will normally be exempt from CGT.
8.2.2 Inheritance tax
8.2.2.1 Potentially exempt transfers
A lifetime transfer into one of the following trusts is a potentially exempt transfer (PET):
•
•
•
bare trust;
disabled persons trust;
bereaved minor’s trust.
There is no immediate tax liability and the transfer will only form part of the calculation for
IHT if the settlor dies within seven years of the transfer.
A lifetime transfer made before 22 March 2006 into an interest in possession trust was also
a potentially exempt transfer.
8.2.2.2 Chargeable lifetime transfers
A lifetime transfer into a discretionary trust has always been a chargeable lifetime transfer
(CLT). This also applies to a lifetime transfer into an interest in possession trust on or after
22 March 2006 (as this is now a relevant property settlement).
If the cumulative total of such transfers, over a seven-year period, exceeds the nil rate band
then there will be an immediate tax charge of 20 per cent payable by the trust.
Example
For example, Petra, who has made no other gifts in recent years, transfers £400,000 on 4
January 2013 into a discretionary trust.
She will be able to use two years’ IHT exemptions, so the chargeable amount will be
£394,000.
There will be an immediate tax liability of £13,800 (£394,000 - £325,000 = £69,000 x 20%).
If Petra were then to die in December 2014 (when the nil rate band is still frozen at
£325,000), then a further 20 per cent tax – £13,800 – would become payable from her
estate. However, were she to live more than three years, but less than seven, taper relief
would apply, and from 2015 the nil band may increase. The additional tax may therefore be
less than £13,800.
If Petra were to live beyond 4 January 2020, there would be no more tax to pay, but the
original £13,800 would not be reclaimable.
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Of course, in this example, the trust does not actually receive £400,000. It receives £386,200
(£400,000 - £13,800) net of tax.
Supposing Petra wishes to ensure that the trust receives £400,000. She should make a
transfer of £417,250 which will be subject to £17,250 tax. (£417,250 - £6,000 = £411,250 £325,000 = £86,250 taxed at 20 per cent).
8.2.2.3 Fourteen-year rule
So far, we have discussed that a transfer into a trust may be a PET or a CLT.
If someone lives for seven years or more after making a PET, then it will become exempt and
cannot affect the IHT position of the estate.
However, when someone makes a chargeable lifetime transfer, this may affect any
subsequent transfers (CLTs or PETs) in the next seven years. A CLT made more than seven
years ago may still affect the tax position of a transfer made in the last seven years.
Therefore, when someone dies, it is necessary for the executors or administrators to look at
all transfers made in the last 14 years.
Example
In February 1999, Edwina, a single person, transferred £195,000 into a discretionary trust.
In November 2005, she made a gift of £250,000 to her daughter, Rachel.
In July 2012, Edwina died leaving an estate of £700,000. She had always used her annual IHT
exemptions.
If we were to ignore the transfer to the discretionary trust, the situation would be:
•
•
no tax on the gift to Rachel as it is covered by the nil rate band;
the remaining £75,000 of the nil rate band (£325,000 - gift £250,000) will be
available to the estate, which will have an IHT liability of £250,000 (£700,000 £75,000 = £625,000 taxed at 40 per cent)
However, under HM Revenue & Customs (HMRC) rules, we cannot ignore the transfer to the
discretionary trust.
Because the gift (a PET) fell within seven years of the transfer to the discretionary trust (a
CLT), it will be affected. The CLT will use £195,000 of the nil rate band and therefore will
only leave £130,000 (£325,000 - £195,000) nil rate band for the gift to Rachel.
Rachel will therefore be liable for tax of £9,600: £250,000 - nil rate £130,000 = £120,000 x
40% = £48,000 x 20% (6-7 years taper).
The estate will still suffer £280,000 IHT (£700,000 x 40%).
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Activity 2: The 14-year rule
The following web pages expand on the 14-year rule. Read these in addition to researching
around the subject.
http://www.legalandgeneral.com/library/investments/taxation-and-trusts/Q35127.pdf
http://www2.skandia.co.uk/Adviser/KnowledgeDirect/Tax--Trusts/Trust-Rules/14-year-rule-the-accumulation-period-for-gifts-involving-discretionary-trusts/
http://www.wealthprotectionreport.co.uk/public/123.cfm
Work through the following example to determine the IHT liability on any transfers made
and on Lily’s estate at her death. Send your answer, showing full workings, to your tutor.
Lily died in October 2012 and left an estate of £550,000. She was single and therefore not
entitled to a nil rate band from a spouse/civil partner.
Lily always made full use of her annual IHT exemptions. In addition, before she died, she
made the following gifts:
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•
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•
July 2000 - £100,000 outright gift
April 2002 - £165,000 gift to discretionary trust
February 2008 - £250,000 gift to a bare trust
April 2009 - £50,000 gift to discretionary trust
Gifts made by individuals (lifetime or upon death) to public purpose trusts are exempt from
IHT.
8.3 Trust funds
In this section, we will discuss the tax treatment of UK resident trusts. Non-resident trusts
are looked at later.
8.3.1 Income tax
8.3.1.1 Bare trust
With a bare trust, the beneficiary is liable for income tax on income received by the trust.
However, although the beneficiary is responsible, the tax may be paid by the trustees on
behalf of the beneficiary.
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The tax will be calculated as though beneficiaries had received the income directly. Each
beneficiary will therefore be entitled to a full personal allowance (unless their income is
above £100,000 in 2012/13).
The one exception to this rule is where there is a lifetime parental trust for a minor (child
under the age of 18) and the minor has never married / entered a civil partnership. If the
trust generates annual income of £100 or more, it will be taxed on the parent. This does not
apply if the settlor is a grandparent or any individual other than a parent.
8.3.1.2 Trust for vulnerable beneficiary
A trust for a vulnerable beneficiary is a trust for
•
•
a disabled person; or
a bereaved minor.
The trustees will be liable for the income tax but it will be calculated on the beneficiary’s tax
position.
The trustees:
(a) calculate the tax as though there is no special tax treatment;
(b) calculate the tax as though payable directly by the beneficiary.
They then deduct the difference between (a) and (b) from the tax that they pay.
8.3.1.3 Interest in possession trust
With an interest in possession trust, one or more of the beneficiaries has an immediate and
automatic right to income (after expenses) received by the trust fund.
The trustees are liable for basic rate tax on the income. This will be 10 per cent on dividends
(covered by the tax credit) or 20 per cent on non-dividend income. The trustees do not have
a personal allowance.
The income is paid to the income beneficiary (usually a life tenant) who will then be
assessed for tax on the income. For example, if a life tenant is a:
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non-taxpayer, they can reclaim 20 per cent tax on gross interest but not the 10 per
cent on dividends;
basic rate taxpayer, there is no more tax to pay;
higher rate taxpayer, they will be liable for a further 20 per cent tax on gross interest
and 22.5 per cent on gross dividends;
additional rate taxpayer, they will be liable for a further 30 per cent tax on gross
interest and 32.5 per cent on gross dividends.
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8.3.1.4 Other trusts
With other trusts, of course, income is distributed at the discretion of the trustees.
Discretionary trusts and accumulation and maintenance trusts are subject to the following
income tax regime:
The trustees have a standard rate band of £1,000 (2012/13) which is subject to standard
rate tax of 10 per cent on dividends (covered by the tax credit) or 20 per cent on other
income. The standard rate band is applied firstly to non-dividend income then to dividends.
If a settlor has created more than one (accumulation and maintenance or discretionary)
trust, then the standard rate band will be divided between the trusts. It will not, however,
reduce below £200 per trust.
Any income in excess of the standard rate band is taxed at an overall trust rate of 42.5 per
cent on dividends and 50 per cent on interest.
If income is paid to a beneficiary, then it carries a 50 per cent tax credit. If the trustees
haven’t paid sufficient tax already, they will have to pay more tax to cover the beneficiary’s
tax credit.
The underlying source of the trust income (eg interest, dividends, rental income) is not
relevant; it has been distributed to the beneficiary as trust income with a 50 per cent tax
credit and therefore a:
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•
•
non-taxpayer can reclaim 50 per cent income tax;
starting rate taxpayer can reclaim 40 per cent;
basic rate taxpayer can reclaim 30 per cent;
higher rate taxpayer can reclaim 10 per cent.
A public purpose trust cannot reclaim the 10 per cent tax credit on dividends; otherwise
trust income will be tax-free.
8.3.2 Capital gains tax
CGT may arise if a trust sells or otherwise makes a disposal of assets. As normal with CGT,
some assets are exempt and any loss on a non-exempt asset can be offset against gains.
A trust may also be able to claim entrepreneurs’ relief (subject to the 2012/13 lifetime limit
of £10m per beneficiary) on certain business assets.
The gain will normally be based on the value at the date the assets were transferred into the
trust. However, where hold-over relief has been applied, the gain will be based on the
settlor’s original acquisition cost.
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8.3.2.1 Bare trusts
With a bare trust, the assets are treated as belonging to the beneficiary. The beneficiary will
therefore have an annual exemption (£10,600 in 2012/13) and will be liable for CGT on any
taxable gains made.
8.3.2.2 Trust for vulnerable beneficiary
With a trust for a vulnerable beneficiary (see 8.3.1.2 above), the trustees will be liable for
any CGT, but it will be calculated on the beneficiary’s tax position.
As with income tax, the trustees:
(a) calculate the CGT as though there is no special tax treatment;
(b) calculate the CGT as though payable directly by the beneficiary.
They then deduct the difference between (a) and (b) from the tax that they pay.
8.3.2.3 Interest in possession trusts and discretionary trusts
The annual CGT exemption for trusts is £5,300 (2012/13), ie half the rate for individuals.
If a settlor has created – after 7 June 1978 – more than one (interest in possession or
discretionary) trust, then the exemption will be divided between the trusts. It will not,
however, reduce below £1,060 per trust.
Any gain in excess of the exemption is taxed at 28 per cent.
The death of a life tenant will not normally result in a CGT liability.
For all discretionary trusts and for interest in possession trusts created on or after 22 March
2006, hold-over relief is available on transfers out of the trust.
8.3.3 Inheritance tax
8.3.3.1 Bare trusts
If the beneficiary of a bare trust dies, trust assets will be included in the estate.
8.3.3.2 Immediate post-death interest trusts and pre-22 March 2006 interest in possession
trusts
Where an interest in possession trust:
•
•
was created before 22 March 2006; or
is an immediate post-death interest trust;
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then on the death of a life tenant, assets will be aggregated with the deceased’s estate.
Example
Bilal, a divorcee, was the sole life tenant on a life interest trust until his death on 10 October
2012.
The trust was created in January 2002.
At the date of Bilal’s death, the trust had assets of £320,000 and Bilal’s estate was valued at
£710,000.
The IHT payable will be £282,000 (£320,000 + £710,000 = £1,030,000 - nil rate £325,000 =
£705,000 taxed at 40 per cent).
The trustees will be liable for £87,611.65 IHT (£282,000 x £320,000/£1,030,000).
Bilal’s personal representatives will be liable for £194,388.35 IHT (£282,000 x
£710,000/£1,030,000).
8.3.3.3 Discretionary trusts and post-22 March 2006 interest in possession trusts
As we have seen, lifetime transfers into these trusts are chargeable lifetime transfers.
As well as the initial IHT on the creation of the trust, there may be further IHT payable on
every tenth anniversary of the trust. This is known as a periodic charge and is calculated by
applying a charge of 30 per cent of the lifetime rate (20 per cent in 2012/13) to any excess
over the nil rate band on the anniversary.
This resulting figure is then applied to the overall trust fund to give an effective rate of tax.
For example, if on the tenth anniversary a trust fund is valued at £600,000 and the nil rate
band has risen to £380,000, then the calculation will be:
£600,000 - £380,000 = £220,000 x 20% x 30% = £13,200 IHT payable.
The effective rate of tax is 2.2 per cent (£13,200/£600,000).
There is also IHT on any distributions made by trustees. This is referred to as an exit charge
and is based on the effective rate, multiplied by a fraction based on the number of quarters
since the last periodic review (or since inception if in the first ten years). The fraction is the
number of quarters elapsed/40, ie based on 40 quarters in a ten-year period.
In the previous example, the effective rate on review was 2.2 per cent.
Supposing, two years later, a transfer of £100,000 was made from the trust. The exit charge
would be £440 (£100,000 x 2.2% x 8/40 quarters).
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Activity 3: Tax treatment of trusts
1. Using the following website, carry out further research around the tax treatment of
trusts: http://www.hmrc.gov.uk/trusts/types/index.htm
2. Using your research, design a table which overviews the tax treatment of trusts
including income tax, CGT and IHT. You should include what the liability is and who
would need to pay this. Assume this is a UK-based trust. You should also include all
types of trust included in this document.
3. Your tutor will post a table at the end of the week’s study. Compare your answer to
those of other students.
8.3.3.4 Timing of transfers
The order in which clients make transfers is important in determining the amount of IHT
payable by trusts on the ten-yearly periodic review. In general, the order in which gifts
should be made is chargeable lifetime transfers (CLTs) before potentially exempt transfers
(PETs).
This is because the ten-year periodic charge on a trust will depend on what other
chargeable transfers were made in the seven years before the trust was set up. If the client
made a PET in this seven-year period and died within seven years of making it, the failed PET
becomes a chargeable transfer and is included in the trust’s tax calculation.
If, however, the PET is made after the CLT, it will not be included in the calculation.
Example
A client fully utilises her annual exemptions, but has made no other transfers until this year.
In September 2012 she made a gift (PET) of £285,000 to her daughter and in October 2012
she put £285,000 into a discretionary trust for her grandson (and any future grandchildren).
She effected gift inter vivos assurance to cover any IHT liability on the transfers in the event
of her death within seven years.
The client dies in December 2013 and leaves her estate to her husband.
Assuming that the nil rate band for 2022/23 is £370,000 and the discretionary trust fund has
grown to £480,000 over ten years, the ten-yearly periodic charge will be £23,700:
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However, had the order been reversed, for example the discretionary trust set up before
the gift, the ten-yearly periodic charge will only be £6,600:
8.3.3.5 Accumulation and maintenance trusts
Where an accumulation and maintenance trust was set up before 22 March 2006, the
trustees were given the option until 6 April 2008 to change the arrangement so that the
distribution of capital and income to a beneficiary would be made on reaching the age of 18.
If this option was taken, then there would be no periodic or exit charges.
Alternatively, the trust could (until 6 April 2008) have been amended to an 18-25 trust, with
assets being transferred to a beneficiary on reaching the age of 25. In this case, there would
be an exit charge based on seven years, from age 18 to 25, ie 28/40.
Many trustees felt that 18 was too young for the beneficiary to receive capital and opted
instead to accept an exit charge.
If no decision was made by the trustees, then the arrangement became a discretionary
trust.
Activity 4: The importance of the Rysaffe judgement
Rysaffe won on appeal to argue that trusts set up on different days did not fall under the
clause of associated operation.
1. Use the following webpages as a starting point and research the principle and how it can
be used to save tax.
•
•
•
http://citywire.co.uk/new-model-adviser/inheritance-tax-the-rysaffesolution/a277049
http://www2.skandia.co.uk/Adviser/KnowledgeDirect/Financial-PlanningSolutions/Worked-examples/Effective-use-of-multiple-trusts-in-trust-planning--theRysaffe-principle-/#page1
http://www.stepjournal.org/journal_archive/2010/step_journal_may_2010/rysaffe_
principles.aspxhttp://www.myintroducer.com/view.asp?ID=8819
2. Create a short PowerPoint presentation on the Rysaffe principle designed for financial
advisers. You should include detail on the background, how it can be used and an example
showing this.
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8.4 Non-resident trusts
From 6 April 2007, the residency rules for income tax and CGT treat the trustees as a single
body. The residence of the body of the trustees depends on the residence status of each
trustee.
If all the trustees are resident in the UK, then the body of trustees is resident in the UK. If all
the trustees are resident outside the UK, then the body of trustees is not resident in the UK.
If there is a mixture of resident and non-resident trustees acting at the same time, then the
body of trustees is resident in the UK unless the settlor is:
•
•
•
not resident in the UK;
not ordinarily resident in the UK;
not domiciled in the UK.
If the settlor satisfies all three of these criteria at the time of settlement or when later funds
are added, then the body of trustees will not be resident in the UK.
Where the body of trustees is not resident, then generally there is no income tax or CGT on
the trust fund (although anti-avoidance legislation may be applied in certain instances).
Any income received by a UK resident beneficiary will be subject to self-assessment.
Activity 5: Residence and domicile
1. Using the following webpages as a starting point, research the rules around residence and
domicile. You should ensure that you understand the following:
•
•
•
•
•
ordinary residence;
domicile of origin and acquiring a new domicile;
resident and ordinarily resident in the UK;
resident and not ordinarily resident in the UK;
not resident.
http://www.hmrc.gov.uk/international/res-dom.htm
http://lexicon.ft.com/Term?term=residence-and-domicile
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/Trusts/Typesoftrustandtaximpli
cations/DG_191782
2. Collate the key points from the bullets above to give an overview of the rules around
these.
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3. In bullet point format, post your points on the unit forum and read the posts of other
students for comparison. In addition, post any other sites that you have found useful for this
on the forum.
8.5 Legal obligations of trustees
When a UK resident trust is formed and there is a possibility of future income or gains, the
trustees must normally advise HMRC of the full title and details of the trust, settlor and
trustees. HMRC must be informed whether the trust is created during lifetime or on death
and given details of assets settled.
The exception to this is a bare trust where, of course, the beneficiary will complete tax
returns. However, although the same level of detail is not required, HMRC must be made
aware of the existence of the bare trust.
Trustees are required to complete a trust and estate self-assessment tax return each tax
year, giving details of trust income, expenses, disposals and distributions.
The deadlines for the submission of the return are the same as for individuals (31 January
following the end of the tax year if submitting online, 31 October if sending a paper copy).
There is a £100 penalty for late submission and further penalties at regular intervals if the
return remains outstanding.
Payments on account are required. For example, for 2012/13, payments on account will be
required on 31 January 2013 and 31 July 2013, with a balancing payment on 31 January
2014. Interest will be charged on any outstanding unpaid tax. Penalties will be applied once
tax has been outstanding for 30 days and then at regular intervals.
Taxation of Trusts: Summary
Bare Trust
Income Tax
Taxed on beneficiary
CGT
Taxed on beneficiary
IHT
PET
(unless parental
money earning £100
pa or more)
Trust for vulnerable Payable by trustees
Payable by trustees
PET
beneficiary
but assessed on
but assessed on
beneficiary
beneficiary
Interest in Possession Trustees pay basic
Pre 22 March 2006
rate. Interest
PET
£5,300 annual
beneficiary may be
able to reclaim (but exemption (2012/13)
not 10% credit on
dividends) or be liable 28% tax on excess From 22 March 2006
CLT with periodic
for further tax,
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Discretionary Trust
depending on
individual tax position.
£1,000 pa standard
£5,300 annual
rate tax. Excess
exemption (2012/13)
subject to additional
28% tax on excess
rate tax.
reviews and exit
charges
CLT with periodic
reviews and exit
charges
Reading
Dyson, M. (2012) Advisers urged to beware exposing clients to trust tax charges.
Myintroducer.com. Available at: http://www.myintroducer.com/view.asp?ID=8819
[Accessed: 3 October 2012].
The Financial Times Lexicon. Residence and domicile. Available at: http://lexicon.ft.com/
Term?term=residence-and-domicile [Accessed: 3 October 2012].
HM Revenue & Customs. How ‘residence’ and ‘domicile’ affect your UK tax. Available at:
http://www.hmrc.gov.uk/international/res-dom.htm [Accessed: 3 October 2012].
HM Revenue & Customs (2012) Non-resident trusts. Available at: _https://www.gov.uk/
[Accessed: 1 November 2012].
HM Revenue & Customs. Types of trust and tax implications. Available at: http://www.
hmrc.gov.uk/trusts/types/index.htm [Accessed: 3 October 2012].
Legal & General (2008) IHT planning. Available at: http://www.legalandgeneral.com/
[Accessed: 1 March 2013].
Legal & General (2012) Beware of the 14 year rule. Available at:
http://www.legalandgeneral.com/library/investments/taxation-and-trusts/Q35127.pdf [Accessed:
1 March 2013].
McGuicken, R. (2010) Rysaffe principles. Step Journal. Available at:
http://www.stepjournal.org/journal_archive/2010/step_journal_may_2010/rysaffe_principl
es.aspx[Accessed: 1 March 2013].
Skandia (2000) 14-year rule accumulation period for gifts involving discretionary trusts.
KnowledgeDirect. Available at http://www2.skandia.co.uk/Adviser/KnowledgeDirect/Tax-Trusts/Trust-Rules/14-year-rule--the-accumulation-period-for-gifts-involving-discretionarytrusts/ [Accessed: 3 October 2012].
Skandia (2011) Effective use of multiple trusts in trust planning: the Rysaffe principle.
KnowledgeDirect. Available at:
http://www2.skandia.co.uk/Adviser/KnowledgeDirect/Financial-PlanningSolutions/Worked-examples/Effective-use-of-multiple-trusts-in-trust-planning--the-Rysaffeprinciple-/ [Accessed:1 March 2013].
14
Tax Justice Network (2009) In trusts we trust. Available at:
http://taxjustice.blogspot.co.uk/2009/07/in-trusts-we-trust.html[Accessed: 1 March 2013].
Weather Protection Report. Warning – when gifts can still be subject to inheritance tax 14
years later. Available at: http://www.wealthprotectionreport.co.uk/public/123.cfm
[Accessed: 3 October 2012].
Additional reading
Contracteye (2012) HMRC investigates Jersey-based K2 tax avoidance scheme. Available at:
http://www.contracteye.co.uk/k2-carr-tax-avoidance.shtml [Accessed: 3 October 2012].
HM Revenue & Customs. HMRC trusts & estates: non-resident trusts. Available at:
http://www.hmrc.gov.uk/cnr/nr_trusts.htm [Accessed: 3 October 2012].
Offshore Formations 24×7. The tax benefits of offshore trusts for non UK domiciliaries.
Available at: http://www.offshoreformations247.com/offshore-companies-articles/the-taxbenefits-of-offshore-trusts-for-non-UK-domiciliaries.html [Accessed: 3 October 2012].
Tax Advisory Partnership. Offshore trusts. Available at: http://www.taxadvisorypartner
ship.com/advisory-services/wealth-structuring/offshore-trusts/ [Accessed: 3 October 2012].
Williams, A. (2011) HMRC to clampdown on offshore trusts. Wealth Manager. Citywire.
Available at: http://www.citywire.co.uk/wealth-manager/hmrc-to-clampdown-on-offshoretrusts/a521329 [Accessed: 3 October 2012].
Self-assessment questions
Complete the following and then refer to the outline answers:
1. Describe the tax position with regard to CGT when a transfer is made to a public
(charitable) purpose trust.
2. A lifetime transfer into what types of trust will be classed as a potentially exempt
transfer?
3. Kavita makes a transfer of £785,000 into a discretionary trust on 5 September 2012.
She has not made any gifts or transfers previously. What is her immediate tax
liability?
4. Explain the tax position for a discretionary trust with regard to CGT and the rate paid
for any trusts set up after 7 June 1978.
15
5. John is the income beneficiary of an interest in possession trust that was set up two
years ago. He is an additional rate taxpayer and has received dividend income. What
is his additional liability on this?
6. With regard to an offshore trust where the body of trustees is not UK resident, what
is the position for the trust for income and CGT?
16

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