Trust and Inheritance Tax – The Basics
With the dust finally settling on the first Tax Return filing deadline for individuals that are regarded as ‘deemed domiciled’ for UK tax purposes, people are often asking whether Trusts still provide a useful succession planning tool in the current climate.
The answer to the above remains a resounding YES although naturally they may not be as UK tax-efficient as they used to be. In addition you will need diligent trustees and record-keeping to ensure that if there is a UK tax exposure in the future, it is possible to calculate this without having to trawl through a number of years bank accounts and transaction schedules to identify what tax rates are likely to apply.
It is difficult to outline all of the issues in one article but put simply, Inheritance Tax (or Death Duties as they were called back in the 19th Century) can potentially make a significant dent in a family’s wealth – up to 40% of the assets can be stripped away in one fell swoop! Provided a non-domiciled individual puts their non-UK assets into a trust structure and the trustees keep those assets outside of the UK there will be no Inheritance Tax to pay even if the individual stays living in the UK for many years to come.
Naturally there may be other compelling issues but it is important to discuss these with your trustees. If you can get it right from day one, it can really be an effective way to protect your family in the longer term.