3 generations of a family

Don’t forget about Trusts

Recently published Government statistics have indicated that the number of families using trusts to plan their finances has continued to decline. In 2017/18 the total number of trusts and estates registered for Self Assessment declined by 6 per cent to 149,000. This continued the downward trend which has seen the number of trusts fall by 29 per cent from 2005. However trusts total declared income for the year rose by 12 per cent to £2.73 billion and capital gains were unchanged at £3.23 billion. Income tax and capital gains tax paid by trusts amounted to £1.32 billion.   

Some of the reasons for the apparent decline in the use of trusts are no doubt due to taxation and other regulatory changes in recent years which have in some cases eroded the benefits of trusts. It is also in part due to the simplification of the Inheritance Tax (IHT) rules in 2007 which enabled the transfer of unused IHT allowances between spouses. Prior to this date trusts were often set up on the first death of a spouse to utilise their IHT allowance. However the figures don’t tell the whole story as there are many trusts which are not currently registered with HM Revenue and Customs because they do not have ongoing tax liabilities to report.

Before we start to herald the death of the trust it is important to remember the many  ways in which trusts are used. This can range from writing life insurance policies in trust so that the benefits are protected on death from IHT to protecting the assets of vulnerable people or simply providing for your family’s long term future.   

There are many circumstances where trusts can be utilised to solve common financial problems such as providing for your spouse and children in the event of your death, purchasing a property for your child to live in whilst at university or to assist with succession planning for the family business, to give just a few examples.

In simple terms, a trust is where one person (the settlor) gives another person (the trustee) assets (the trust fund) which they hold for the benefit of a third party (the beneficiary).

A trust is a way of passing on assets, whilst still being able to retain some control, or specify certain conditions over the assets. For example, you could name yourself as trustee, giving you the ability to decide how and when beneficiaries receive income or capital.

Trusts should not be overlooked in the many situations where they can provide a tax efficient solution. Trusts are not just for the very wealthy and should always be considered in appropriate circumstances. There are alternative structures to trusts such as family investment companies which have grown in popularity but trusts are still a vital part of tax and financial planning.

For advice on your tax planning, please get in touch by calling 01768 222030 or email graham.arnott@armstrongwatson.co.uk

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