Tax Efficient Trust Administration

The law relating to the taxation of trusts has changed significantly during the last few years, with far reaching changes being made to the way that many trusts are subject to Inheritance Tax, Capital Gains Tax and Income Tax. With a holistic overview of the investment, taxation and legal environment and up-to-date knowledge, we are able to advise on appropriate structures to put in place and build-in as much flexibility as possible so as to enable trustees to adapt to future regulatory changes.

From 6 April 2010, most trusts where trustees have discretion as to whether or not income is paid to a beneficiary will be subject to Income Tax at a top rate of 50%. We are well placed to advise clients on possible ways to mitigate this, whether by restructuring the trust, using offshore bond structures, realigning investment strategies, or by making tax efficient payments to beneficiaries, including minors, who are not taxpayers themselves.

The abolition of Capital Gains Tax taper relief and its replacement with a standard rate of tax on gains at the rate of 18% opens up possibilities for trustees of existing trusts to reduce in-built gains in mature portfolios and diversify investments, thereby reducing stock specific risks. This, combined with the use of "holdover relief", where assets can be transferred in and out of some forms of trust without giving rise to a charge to tax has made the trust an efficient vehicle for mitigating Capital Gains Tax when considering lifetime giving.

In 2006, significant changes were made to the Inheritance Tax regime. Whilst on one hand this has limited flexibility on the creation of new trusts, it does on the other hand enable trustees to now structure their trust fund in alternative ways without compromising its effectiveness for Inheritance Tax. With deep and extensive experience of carrying out such an exercise, we can offer clients clear and practical advice on this often complex area.