Putting a property into trust
30/11/2017
A trust is the transfer of assets such as money or property to the Trustees and the assets are held on trust for the benefit of the beneficiaries (the people who benefit from the money or gains from the property). Property is often transferred into a trust as part of inheritance tax planning however the trust needs to meet certain conditions and to be set up correctly by a solicitor.
By putting a property into trust rather than making an outright gift, you are able to control how the property is used after it is given away.
Creating a trust means that the property is no longer yours, it is now owned by the Trustees, however you can choose to be one of the Trustees during your lifetime which means you can remain in control of the property.
There are administrative costs of creating a trust and administering the trust. It may also be necessary to submit a tax return if rental income is produced from the trust.
It must also be borne in mind that if you need local authority nursing care, any gift made to a trust can be set aside if a local authority considers it was done deliberately to deprive yourself of assets.
Creating a trust should not be looked on as an simple solution. In this article we explain:
- What is a trust?
- What are the two main types of trust?
- What are the taxation implications of a trust?
- Can a Trustee be a Beneficiary?
- How much does it cost to set up a trust?
We have specialist trust solicitors to help you set up a trust for your property.Call us on 0333 344 3234 (local call charges apply) or email help@samconveyancing.co.uk.
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What are the two main types of trust
There are a number of trusts that can be set up however there are two main ones:
Interest in Possession Trust
This is a trust where the income or entitlement of a trust must be given to a beneficiary or beneficiaries; the entitlement is fixed.
Discretionarv Trust
With a discretionary trust the income and/or capital of a trust would only be given to a beneficiary at the discretion of trustees.
Creating a discretionary trust provides a certain amount of flexibility as Trustees could, for example, direct income from a rental property, to the most needy beneficiary.
Taxation Implications
The taxation implications of setting up a trust are complex and you would need to seek taxation advice from an accountant before setting up a Trust. However, I set out the inheritance tax implications of setting up a trust.
Inheritance Tax
You would usually be limited to putting into the trust assets which are less than £325,000 to avoid an inheritance tax charge when setting up the trust. However if you have made chargeable gifts in the seven years before setting up the Trust, this will not be the case.
There is only usually an inheritance tax saving if you survive for seven years from creating the trust but for this saving to apply, you must not be a beneficiary of the trust and must not benefit from any of the assets in the trust.
There are also further tax charges would could arise during the lifetime of the trust on each 10th anniversary of the creation of the trust and when the trust comes to an end. Furthermore, if you were to die within 7 years of setting up the trust, additional tax may be payable from your estate.
There are also income tax, capital gains tax and Stamp Duty Land Tax SDLT considerations to consider.
Careful consideration needs to be made as to the type of trust which you set up and also the taxation implications. These decisions need to be made after taking both accountancy and legal advice.
Can a Trustee be a Beneficiary?
It is normal for a Trustee to also be a beneficiary of a trust. Where a Trustee is given discretionary powers, it is advisable that there is a minimum of one independent trustee who is not a beneficiary of the trust (although they may be paid to administer the trust).
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