It’s a common misconception that assets in trust are exempt from inheritance tax. You’ll normally pay it at 20% when setting up a trust if it’s in excess of the nil-rate band. There are some exceptions, such as if you continue to benefit from the assets. The way a trust is taxed depends on what sort of trust it is.
Are trusts subject to inheritance tax UK?
You pay Inheritance Tax on ‘relevant property’ – assets like money, shares, houses or land. This includes the assets in most trusts. There are some occasions where you may not have to pay Inheritance Tax – for example where the trust contains excluded property.
How does a trust fund work for a disabled person?
You can spend trust funds only for the benefit of the person with the disability, to supplement government benefits. This means that they can be spent for almost anything that helps the beneficiary except food, clothing, and shelter. The trustee is also responsible for ending the trust, when it’s appropriate.
Do you pay inheritance tax on a Disabled Trust?
Disabled trusts are not subject to these charges. On the death of the disabled person, the trust property is treated as being owned by them. If the disabled person’s estate exceeds £325,000, there will be an Inheritance tax charge of 40% on anything over and above this amount.
How are trusts for vulnerable people taxed?
Inheritance Tax. These are the situations when trusts for vulnerable people get special Inheritance Tax treatment: There’s no Inheritance Tax charge: When the beneficiary dies, any assets held in the trust on their behalf are treated as part of their estate and Inheritance Tax may be charged.
When do you have to pay capital gains tax on a Disabled Trust?
The trustees are responsible for paying any Capital Gains Tax due. Most trusts are liable to pay Inheritance tax every ten years (an ‘anniversary charge’) and when assets leave the trust (an ‘exit charge’). Disabled trusts are not subject to these charges. On the death of the disabled person, the trust property is treated as being owned by them.
What to do if you have a disabled person’s trust?
HMRC will then issue a unique tax reference number. If you have a Disabled Person’s Trust you can then complete form VPE1 and send this to HMRC claiming the Vulnerable Person’s Tax Election. This secures the favourable income and capital gains tax treatment of the Trust.
