Trusts School Lesson 2 Q&A

Q. Are there tax implications when parents set up NRB discretionary trusts/offshore bonds for the benefit of their children and the funds are used for school fees prior to their 18th birthdays and/or university fees post 18.

A. Broadly, yes. If there is an income tax liability due to an appointment to an unmarried minor child and their parent set up the trust, the parental settlement (£100) rule applies. Once the child is 18 then tax liability falls on the child, assuming the segment is assigned to them. Otherwise the usual settlor/trustee/beneficiary rules apply.

Q. If the investment vehicle that the trust uses is an onshore bond then does this change?

A. If the trust asset is an onshore bond, there are no income tax considerations for the trustees as the trust is not receiving any income.

Q. So for the bare trust - do the trustees pay it from the trust - or is the individual beneficiary the one paying the tax?

A. The liability to pay the tax rests with the child, as the trust money is the child’s money the trustees could pay the tax bill.

Q. Slightly confused about the tax payable on IIP trust... seems like double taxation is happening, 20% by trustees and 20% by beneficiary of income? Wouldn't mind some clarification on this please

A. In an IIP trust, income belongs beneficially to the life tenant. Trustees may pay basic-rate tax on certain income before it is passed on, but the beneficiary is taxed on the gross income and receives credit for tax already paid by the trustees. The beneficiary only pays further tax if their personal rate exceeds the credit available. So while there is two tax returns there is no double taxation.

Q. You reference IIP income can be assigned straight to beneficiary / Is this the same with a property (rental income) scenario rather than a GIA? Assuming someone left their property in trust for to produce income for surviving spouse but eventually to pass to child on 2nd death

A. Our understanding is any income whether GIA/property etc can be mandated to the IIP beneficiary to simplify the trust admin. The key point is income can never “touch” the trust.

Q. Can a tax pool still be invested?

A. The tax pool is an administrative record of tax paid by trustees that supports the administration of the tax credits attached to discretionary income distributions. So there is no money to be invested.

Q. Is there a reason why discretionary trust rates are so much higher than IPP

A. Not sure! We assume it was better for the exchequer to have full tax paid and then reclaimed by beneficiaries than to have a lower rate paid and beneficiaries having to self-assess additional liabilities.

Q. Tax on discretionary trusts - can you explain the situation where the trust has paid tax on dividend income at 39.35% and the tax credit is always 45% on distribution to the beneficiary - does this get messy in terms of having a sufficient tax pool?

A. Broadly, yes. Dividend income in a discretionary trust is taxed at the dividend trust rate, but when income is distributed the beneficiary receives a 45% tax credit. If the trustees have only paid tax at the dividend trust rate, the tax pool may be insufficient unless topped up by the trustees. Things will be interesting when property and savings income becomes 47% but the tax credit is 45% in future.

Q. If a bare trust is created by a will and the settlor dies does the parental settlement rules apply when the settlor has passed away for income more than £100?

A. No.

Q. With discretionary trusts, if this was set up in a will and related to pension funds, how would the tax work if there were two trustees and one beneficiary who was also a trustee? Would there be any way to transfer all trust assets to the beneficiary and close the trust?

A. How the discretionary trust came into being doesn’t really matter the taxation works the same as a discretionary trust set up in lifetime. Although in this scenario the settlor would be dead so you’d be looking at trustee/beneficiary liability.  The assets could be assigned to beneficiaries if there was a desire to close the trust.

Q. With the tax pool, who/how do you keep track of this?

A. The trustees are responsible for maintaining trust records and accounts including the tax pool. They can do this or pay someone else to do so.  How – keep records!

Q. What about clients spending more than 181 days in Spain with UK ties including a business and home. Are they UK or Spanish tax resident for Trust purposes and would the trust be accessed in the UK but ignored in Spain? What would be the case if they become tax resident in Spain only?

A. We can’t help with cross border matters – specialist advice should be sought.

Q. Aren't there income allowances for Trustees of £500?

A. We forgot to mention this during the session as it doesn’t often apply but discretionary trusts with income of less than £500 in a tax year do not need to complete a tax return or pay tax on it for that year. Importantly, where a settlor has created more than one trust, the £500 is split between them subject to a minimum of £100 per trust. Once income is distributed, the trustees may need to balance up with HMRC if the tax pool is insufficient to cover the tax credit.

Q. What if settlor, trustees, and beneficiaries are all non-uk resident? How is a trust taxed?

A. No idea! You would definitely need to seek tax advice.

Q. Would you recommend income units for a general account in a discretionary/iip trust?

A. Yes for an IIP trust because there is a beneficiary entitled to income. Income units means the income is available to pass on whereas accumulation units wouldn’t. For discretionary trusts, income or accumulation units may be appropriate. It depends on whether the trustees are planning to distribute income on a regular basis or not.

Q. Regarding what you just said with the trustees keeping track of the tax pool, if they appoint a tax adviser, can they pay for this from the trust assets?

A. Yes. Generally trustees can pay properly incurred professional fees from trust assets where the expense is incurred for trust administration. Whether the fee is deductible for tax purposes is a separate question.

Q. Does it make sense to set up multiple trusts to increase the CGT allowance (ie. 10 x £300 would get it back up to £3,000)?

A. Doubtful! There is a tax benefit but this would need balanced against the costs and administration of running 10 trusts. An extra £1,500 is only a CGT saving of £360.

Q. Re the CGT annual exemption divided by the number of trusts set up by the settlor : does a term life policy written in trust count as one such trust?

A. For CGT annual exempt amount purposes, what matters is whether it is a separate settlement created by the settlor. What is in that settlement is largely irrelevant. 

Q. What is the process of making a joint election for holdover relief? Is there a form? Is it an exchange of letters?

A. There is a form HS259 details of claiming are here. 

Q. If a trust is invested in accumulation units, and needs to be disinvested to pay the income tax, would this also potentially a capital gains charge as well, so would require grossing up to take into account the CGT?

A. Potentially, yes. If accumulation units are sold to raise cash to pay income tax, that disposal can itself create a capital gain. In practice trustees may need to consider both the income tax bill and possible CGT consequences when deciding how much to disinvest.

Q. Does tax paid on bonds by trustees go into the tax pool? Can it/when can it be reclaimed by a beneficiary on distribution?

A. The tax paid on bond gains by the trustees does not go into the discretionary trust tax pool. A beneficiary cannot reclaim the tax paid as they are receiving trust capital not income.

Q. I have a new client who has some existing bonds (some with the Pru) and they are owned by the her (daughter) and her mother, she wants to move the bonds ownership into her name or jointly with her husband. Would there be any tax charge?

A. The assignment of ownership is a gift between the parties so if this was a genuine unencumbered gift then there is no chargeable event. Gift assignments do not trigger chargeable events. The assignment would be a PET for IHT purposes.

Q. What happens with tax on discounted gift trust when got to 20 years and no more 5% annual applicable?

A. As the cumulative allowance is exhausted, further withdrawals trigger chargeable event excess gains. At the end of year 21 there is 21 years for top slicing but subsequent years there is no top slicing as the previous excess event was a year ago.

Q. When talking about trustees/settlor having to pay tax due - how does that work in the real world? They need to find the money themselves or can draw money from the tax to pay HMRC?

A. The trustees need to pay trust tax liabilities from trust assets.  If the settlor paid a trust tax liability that would be a further gift. For settlors they can pay from their own resources but where they have a right of recovery form the trustees if they don’t exercise that right that would be a further gift.

Q. How is an Investment Bond in a Trust set up for a child, and then claimed by that child when they are 25 years old taxed?

A. The position depends on whether the child takes by absolute entitlement (for example, a bare trust ending at 25 under the trust terms) or whether the trustees trigger a chargeable event before appointment. If bond segments are assigned to the beneficiary without a chargeable event, later gains are usually taxed on the beneficiary when they personally encash. If the trustees surrender within the trust first, the trust bears the tax charge.

Q. Can you remind me, if the settlor and life assured of a bond in discretionary trust dies, can the trustees still assign segments to beneficiaries?

A. No, when the last life assured dies on a bond it ceases and can’t be assigned.

Q. Is it worth including youngest beneficiaries on a bond within a trust to ensure that the bond doesn't end with settlors death and give more time for the trust to assign to beneficiaries

A. This is more of a planning point than a strict tax rule. Including younger beneficiaries as lives assured provides flexibility if the trust and policy continue after the settlor’s death, but whether it is 'worth it' depends on the trust wording and the wider planning objectives. It is not a universal solution. In some cases it may be desirable that the bond ends when the settlor dies whether that meets the trust objectives better or perhaps the tax position is better as, for example, the settlor is a lower tax payer than the potential beneficiaries.  With a discretionary Loan Trust where the loan is going to be repaid to estate on death then having the bond end when the settlor dies prevents the trustees having to encash at their tax rates if they do not manage to encash it in the year of the settlors death.

Q. Can you assign bond segments to a minor via a bare trust?

A. Yes you can assign bond segment  bare trust  for a minor. If the bond is already in a discretionary trust you could appoint segments which achieves the same outcome.

Q. Can you assign segments out of a discretionary trust into a bare trust, rather than appointing the segments within the trust?

A. As long as the deed allows then yes.

Q. Does M&G/ providers generally have a specific deed to appoint segments in favour of a minor beneficiary (rather than a deed of assignment).

A. We do, we know some others do, but can’t be sure everyone has.

Q. Why do have so many potential pitfalls e.g. to absolutely appoint segments to a minor has same outcome as assignment, just a different form - the intention is the same. Any chance of lobbying HMRC for proper simplification?

A. We doubt they would consider not being able to pick the right form as justification for simplification . 

Q. If a sum is gifted into a discretionary trust and over 7 years pass, making it outside the estate for IHT, does CGT still apply to the settlor or trustees upon disposals?

A. Yes. The fact that the chargeable transfer into a discretionary trust is outside the settlor’s estate for IHT after seven years does not change the CGT treatment of the trust. Future disposals are taxed under the normal CGT rules applicable to the trustees.

Q. Regarding Bonds does the treatment of appointment of segments change when it’s an offshore bond as opposed to a UK bond?

A. The mechanics of making an appointment are the same, it’s just that  onshore and offshore bonds differ in how gains are calculated and taxed.

Q. Can segments be assigned from a discretionary trust in the form of a loan to a beneficiary?

A. Bond segments themselves are usually appointed or assigned which changes the beneficial or legal ownership respectively. Bond segments are not typically 'loaned' in the way cash can be. My understanding is that even if it can be done, it would be classed as an assignment for money or money’s worth and a chargeable event would occur. 

Q. Assigning segments to beneficiaries maybe more tax efficient but if there are e.g. 6 beneficiaries doesn't it makes things too complicated?

A. Assigning segments to multiple beneficiaries would require a deed of assignment to be completed for each assignment i.e. 6 deeds of assignment. You would need to consider what the tax impact would be of encashing within the trust versus the position if the assignments are carried out. If for example, encashing within the trust would result in a high rate of rate, either because the gain is being assessed on the trustees or maybe a higher rate taxpaying settlor, assignment may result in a better outcome. You would need to take into the tax position of the beneficiaries for the assignment route as well and do a comparison. What wouldn’t be appropriate would be to avoid the assignment option simply because the trustees don’t want to have to complete more paperwork. This would be in breach of their duties.

Q. Is it necessary to complete an SA900 for a discretionary trust that holds a single onshore investment bond with growth assets?

A. Broadly, no. A discretionary trust holding only a single onshore bond with no chargeable event and no other reportable income does not need an annual SA900 purely because the bond is in force. However, if HMRC has issued a notice to file, or if chargeable events/other taxable matters arise, a return may be required.

Q. Is there any tax due when all segments are assigned to a beneficiary (other than tax due after top slice on the beneficiary)

A. A pure assignment of bond segments to a beneficiary is generally not itself a chargeable event, so there is usually no immediate income tax charge simply because the segments are assigned. The tax issue then arises later if and when the beneficiary surrenders or otherwise triggers a chargeable event. There could potentially be an IHT exit charge on the distribution if you are referring to a relevant property trust.

Q. Mother and daughter initiated a disc trust 2020,the daughter now lives in the UAE who would be liable for the tax on the bond assuming segments are assigned after 7 complete years

A. It’s not clear who the segments are being assigned to but it is usually the assignee who is liable for any tax on gains.  If you mean both the mother and daughter settled a trust together then you should probably also seek cross border tax advice.

Q. Do discretionary trusts set up on death still have periodic charges for IHT? Considering all IHT would have been paid on the assets on death.

A. Yes, they can. A discretionary trust created on death is still be a relevant property trust and therefore subject to ten-year and exit charges, even though the death estate may already have suffered IHT. The trust’s own relevant property regime is separate from the estate charge on death.

Q. If a will creates multiple trusts, are these all classed as 'related settlements' for calculating the periodic charge?

A. Where more than one discretionary trust is created under a Will, our understanding is these would be treated as related settlements.

Q. Does the 14 year rule only apply to CLT before PET not PET before CLT?

A. If you survive 7 years from making a PET, it is out of your estate and IHT calculations (unless it’s gift with reservation). A PET over 7 years old won’t impact any tax payable on a CLT. The 14 year rule refers to when a PET fails i.e. donor dies within 7 years. You then need to go back 7 years to see if there are any CLTs as this can impact the tax payable on the now chargeable PET. We have a short video which explains it. The 14 Year Rule | Tax on Gifts | M&G for Advisers

Q. How is it that some clients are saying they already have their house in trust, but they are still living in it and they are not paying market rate rent?  Would the house be outside their estate for IHT?

A. No their house will be in their estate as it would be a gift with reservation. There may also need to be initial and periodic charges depending on values.  These trusts have, quite rightly very bad press.

Q. If and when BPR assets sold within trust assume it would lose the relief for the trust based on original settlement value transferred?

A. If business relief property is sold and the proceeds are no longer qualifying relevant business property, the relief would cease to be available (unless the replacement property rules are satisfied). The trust then needs to be reviewed based on what it actually holds at the relevant charge date.

Q. If the settlor pays the tax on a CLT, the tax is grossed up and treated as another gift but does it use up NRB as well? E.g: Gift of £350,000. Taxed at £6,250 so is the CLT 356,250 or £350,000?

A. If the settlor is looking to pay the entry charge then the tax is grossed up to take account of a larger gift being made. In your example the chargeable lifetime transfer would be £356,250. You can work this backwards to make sense of it. If someone did make a CLT of £356,250 (and assuming no other gifts), this exceeds the NRB by £31,250. If that was taxed at 20% it would result in an entry charge of £31,250 x 20% = £6,250

Q. So previously taken income does impacts the 10 year tax charge.

A. It’s capital distributions to beneficiaries that reduce the trust’s nil rate band for the periodic charge calculation. Income distributions do not. If you are referring to regular withdrawals from an investment bond then remember these are capital, not income. 

Q. If the Trust is set up on 18th June 2016 do you need the valuation on the 17th June 2026 for calculating the periodic charge?

A. For a ten-year anniversary on 18 June 2026, the relevant valuation is the value immediately before that anniversary—practically, the value at the close of 17 June 2026 or at the start of 18 June 2026 depending on the valuation method used. The key point is the value at the anniversary moment.

Q. If an individual had a Loan Trust but they waived their right to the loan and now it has become a standard Discretionary Trust, which IHT100 form needs to be completed?

A. Waiving the loan is normally a transfer of value into the trust and may need to be reported as a chargeable lifetime transfer using form IHT100a.

Q. How are 'gifts from surplus income' into Discretionary Trusts (i.e. immediately IHT exempt transfers) valued for lifetime IHT charges immediately and on the 10year periodic charge?

A. If gifts into the discretionary trust qualify as normal expenditure out of income, they can be exempt from lifetime IHT when made. But for a ten-year charge you still look at the actual value of the relevant property in the trust at the anniversary. The fact the original transfer was exempt does not remove the property from the relevant property regime. Adjustments will need to be made as each gift will not have been in the trust for the full 10 years.

Q. When you talk about capital distributions from the Trust (for 10y anniversary calculations) - are segment assignments count as capital distributions?

A. Yes, assignments or appointments of bond segments out of a relevant property trust are generally capital distributions for relevant property purposes and can therefore be relevant to exit charge and anniversary calculations.

Q. Paying periodic charge - how does that work in the real world? If the discretionary Trust is due tax and holds investment bond and have to encash segments in the Trust - will Trustee tax be due on top of the periodic charge?

A. Potentially, yes. If trustees encash bond segments in the trust to raise cash for the periodic charge (or anything else they need funds for), that encashment can itself create a chargeable event gain taxable on the trustees.  So there can be tax on the bond action as well as the IHT periodic charge. In a lot of scenarios however, the trustees can make a withdrawal across segments and make use of the tax deferred allowance to avoid this.

Q. If client wants to put £325,000 into a discretionary gift trust with Pru using an investment bond. Pru will need proof of the TRS registration in order process the application. Can the trust be registered before any assets are physically held within trust?

A. It is true that a trust is not normally properly constituted until there is property settled into it. For Prudential’s ‘at issue’ trusts this means the trust commences once the bond is put in force. However, the start date for a new trust for TRS purposes is not necessarily the same date used for tax purposes. The TRS guidance states that for TRS purposes the start date for a new trust is the date the trust deed is signed. For tax purposes the start date for a trust is the date that property is added to the trust.

Q. If the trust pays the periodic charge will that not result in bond withdrawals or segment encashment reducing the beneficiaries entitlement. If the Settlor decides to pay the tax via a loan and later decides to waive the loan but there is no assets left in the trust what is the implication?

A. Paying the periodic charge from trust assets will reduce what remains for beneficiaries. If the settlor instead lends the money, that preserves trust assets but creates a debt owed by the trust. If the settlor later waives that debt, the waiver is a further gift.

Q. How do the trustees pay the periodic charge when the only asset is an investment bond?

A. Trustees would need to make a withdrawal from the investment bond. The chosen route i.e. full segment surrender v partial withdrawal, should be checked for any chargeable event or other tax implications.

cases they should contact HMRC.

Q. Could you explain in brief how and why Pensions can create more than one periodic charge allowance for a spousal bypass trust? Especially in line with 2027 changes coming and the benefit of putting in place a trust solution.

A. Broadly, as each pension scheme is a settlement in its own right they effectively stay separate with their own IHT positions.

Q. I thought the periodic charge applied only to the balance over the NRB, not whole trust fund as you demonstrated

A. There are a couple of ways you can do the periodic charge calculation. The simple method involves working out by how much the relevant property exceeds the nil rate band and taxing the excess at 6%. This simple method does not always work for more complicated scenarios and then you need to use the more technical method outlined in the session. When you carry out the calculation the “long way” the rate of tax is applied to the whole trust fund. Both methods should give the same result as the rate calculated in the longer calculation is much lower than the 6% used in the simpler calculation.

Q. Can you apply hold-over relief on the way into Trust, and then again on the way out of Trust?

A. Potentially, yes. Hold-over relief can be claimed on the way into trust and again on the way out, provided the statutory conditions are met on each transfer and the relevant assets qualify. Each transfer is tested separately.

Q. In a discretionary trust that was subject to a 10 year charge, if some of the bond segments are later assigned to a beneficiary, who pays the tax - the person who the bond is assigned to or the trust?

A. If bond segments are assigned to a beneficiary, the later chargeable event tax is usually borne by the person who then owns the segments when a chargeable event occurs. The trust itself would normally only bear tax if it triggers the chargeable event before the assignment.

Q. If a payment is made out of the discretionary charge in the first 10 years, does that reduce the Available NRB at all 10 year anniversaries

A. A capital payment out of the trust in the first ten years does not permanently reduce the nil-rate band. When calculating the nil rate band available for a particular ten year anniversary it is only capital distributions in the ten years before the ten year anniversary that reduce the nil rate band.

Q. Regarding Periodic Charge, if no payment is necessary, is it still a requirement for trustees to send a 'nil return' submission to HMRC?

A. Even where no tax is payable, trustees still need to report if the value of relevant property exceeds 80% of the trust’s available nil rate band.

Q. Could you please confirm again the Periodic Charge on a Loan Trust. Is the outstanding loan included in the value of the plan for the Periodic Charge Assessment or is the overall value calculated, less any outstanding loan amount and used as the value for the Periodic Charge amount?

A. For a loan trust, the periodic charge is based broadly on the net trust value i.e the market value of the plan or other trust assets less the outstanding loan owed back to the settlor. It is the net relevant property that matters, not the gross policy value alone.

Q. Can the trust pay for the 10 year charge

A. Yes. The trust is liable for paying the ten year charge from trust assets. The key practical point is how cash is generated and whether that creates any additional tax charge.

Q. If a life insurance policy pays out to a discretionary trust, and the trust then lends the money to the beneficiaries on an interest-free basis, will there be any recurring or exit taxes to pay?

A. Potentially, yes. Where money is loaned to a beneficiary, the outstanding loan remains an asset of the trust. Its value would be included for the purposes of calculating any recurring periodic charges. Exit charges only arise when capital is distributed to a beneficiary of the trust. A loan would not cause an exit charge however, if the loan was waived this could give rise to an exit charge.

Q. I think I heard you say the financial adviser charge is not counted in the tax calculation, was I mistaken? I thought it was coutned as a withdrawal - where have I got confused?

A. You may be mixing bond chargeable event calculations with IHT charges on the trust. A fee facilitated from the bond can count as a withdrawal for chargeable event purposes depending on how it is structured and deducted. An ongoing advice charge is not a capital distribution to a beneficiary though so does not reduce the trust’s nil rate band for the purposes of calculating ongoing IHT charges.

Q. If there is no value in the trust other than a loan agreement, can the trustees pay directly the periodic charge, doesn't have to come from trustee bank account?

A. Practically, any tax due still needs to be paid by the trustees, but where the trust has no liquid assets they may need funds injected or assets realised to pay it. We don’t; believe there is an actual necessity for the money to come from a trustee bank account as long as it comes from the trust.

Q. Had do the trustees pay the periodic charges from a DGT i.e. how do they make a withdrawal to do so?

A. If a DGT needs cash to pay a periodic charge, the trustees may need to surrender segments, make a partial surrender or use other available trust assets/cash. Any bond action taken to raise cash must also be checked for chargeable event consequences.

Q. Are the trustees responsible for ensuring the 10 year charge is calculated or the adviser to the trust?

A. The legal responsibility sits with the trustees. Advisers and accountants may help calculate the charge, but trustees remain responsible for ensuring reporting and payment obligations are met.

Q. Are there any IHT implications for using gifting out of regular income into a discretionary trust?

A. If additions into a discretionary trust qualify as normal expenditure out of income, they can be immediately exempt for IHT and therefore need not use the settlor’s nil-rate band. However, the trust property itself is still relevant property for future ten-year/exit charge purposes.

Q. Paying periodic tax charges. You note that if the settlor pays this is an additional gift. Are there any concerns/considerations/risks around the settlor LOANING the money to the trustees to pay it?

A. A loan from the settlor to the trustees would avoid an immediate additional gift because it creates a recoverable debt rather than a gift. But there are practical risks: documentation must be robust, interest terms should be considered, and a later waiver of the loan would itself be a further transfer of value. The trust deed should always be checked as well.

Q. Can you reduce the period charge by assigning policy segments out before the 10yr deadline?

A. If trustees validly appoint assets (including bond segments) out before the ten year anniversary, those assets will no longer form part of the relevant property at the anniversary so will not itself suffer a periodic charge. It’s important to remember though that capital distributions in the ten years before a ten year anniversary will reduce the nil rate band available for the trust. You can’t just assign out enough segments to bring the trust value below £325,000 for example to avoid a periodic charge.

Q. Periodic charge on premiums paid on a WOL policy set up in discretionary trust E.G. premiums fixed at £2k pm so premiums paid over first 10 years = £240k. NRB = £325k so no charge at 10 years. 20 years, total premiums paid £480,000 less NRB £325k = £155k. Is this taxed at 6% (£9,300) at 20th year?

A. The value of a whole of life policy for the purposes of calculating periodic charges is the higher of, the open market value and the sum of premiums paid. Unless the WOL policy is unit linked or the life assured is in serious ill health, the value used will normally be the total of premiums. In your example, assuming this was the case, then yes the trustees would have a periodic charge at the 20^th anniversary of the trust. We agree with the £9,300 figure if the trust had a full nil rate band.

Q. Does the periodic charge change if the trust assets or part of the trust assets were funded by gifts out of disposable income, as this doesn't utilise the NRB?

A. The periodic charge calculation still looks at the value of relevant property in the trust and the available nil-rate band at the anniversary. If additions into a discretionary trust qualified under the normal expenditure out of income exemption, they are exempt gifts however, once within the trust, they are relevant property for anniversary/exit charge purposes.

Q. What is the calculation for a DGT on the 10th anniversary for the periodic charge

A. For a DGT, the ten-year charge calculation starts with the open market value of the trust fund at the anniversary, taking account of the bond value and the settlor’s retained rights under the discounted gift arrangement. The available nil-rate band and any prior relevant transfers then feed into the tax calculation. Trustees will need provider information and sometimes specialist input to establish the discount at the 10 year anniversary.

Q. In your experience , is it generally advisers who work out the periodic and exit charges or do most refer to accountants ? Irrespective it is clearly important for advisers to have an understanding so thank you.

A. In practice many advisers understand the principles and identify when a charge may arise, but accountants or specialist trust tax practitioners are often asked to calculate periodic and exit charges formally, especially where there have been additions, distributions or non-standard assets. Specialist advice is usually appropriate.

Q. Where an Investment Bond is held within a Loan Trust and the settlor is taking 5% withdrawals, how is the periodic charge calculated?

A. You start with the value of the bond or other trust assets at the ten year anniversary, then deduct the outstanding loan still owed to the settlor before calculating the notional lifetime transfer for the periodic charge calculation.   Payments to the settlor are not distributions they are loan repayments so don’t get “added back”.

Q. If the trust is created from a will, how long do they have to create the trust?

A. It’s not our area of expertise but our understanding is the trust is created on death. Practicalities/formalities might mean the trust actually has no assets until the estate passes them to the trust.  

Q. What happens with a Loan Trust and the settlors withdrawing funds.

A. When trustees need to repay some of the loan they need to cash in the investments they hold to make the payment. The tax consequences follow just like any other trust.

Q. If a settlor/trustee dies having registered the trust via the TRS and is replaced by new trustees, I think they can simply "update" the existing TRS record instead of creating a new one. Is this correct? Would it matter if they set up a new TRS if they were unable to access the existing TRS record?

A. Normally the trustees should update the existing TRS entry when trustees change, rather than creating a new record for the same trust. Creating a fresh record for an existing trust could cause duplication/confusion and would generally not be the correct approach unless HMRC specifically directs otherwise. The problem that can sometimes arise is where the login details have been lost due to the deceased trustee having been acting as the lead trustee. In these

Q. Pensions are not directed via the Will

A. Some pension death benefits are directed by the Will. Where the death benefit is payable to the estate it will be distributed in accordance with the Will.  An old retirement annuity contract not held in trust is an example which would be paid to the estate and the Will would determine who ultimately benefits from the death benefit. But most pensions are under scheme discretionary disposal.