Tax on inherited proceeds from a trust account
Discussion
Asking for a friend - literally, not figuratively my Dad is alive and kicking and hopefully will be for several years yet and in any case would run a mile from this kind of complication.
Would like an a knowledgeable answer rather than an unqualified answer which is all I can come up even after copious research.
So... many years ago friend's parents placed their house "in trust" through one of those companies that do that kind of thing specifically. Ring-fenced assets, etc. The trustees being the parents and their children (adults). The trustees are the beneficiaries.
The house was sold off a few years later after the passing of one of them, and so the money from the house went into the trust as the protected asset rather than the house. At the same time that happened the remaining parent was removed as a beneficiary from the Trust so the trustees are now just the children (adults).
Now the other parent has died so they are looking at splitting that money out of the account held in trust and transferring it to their own accounts. Technically I guess they could have done it before but I suppose there are reasons they waited until now.
As far as I can tell, when the money is taken out of the ring-fenced trust account then it becomes something that the children are liable to pay capital gains tax on ?
Whilst it's essentially inherited money in reality, I think that the moment the house went into trust it ceased to be something that would be counted for inheritance tax but became an asset liable for CG tax. I bet the Trust Company salesman glossed over that fact...
The value of it is well under inheritance tax level, but enough that CG tax would be due.
It seems that they would have to inform the tax man themselves as well so would need to get it right, as I get the impression it's not written in the will specifically as an asset.
Am I barking up the wrong tree here or does my google-informed opinion sound right?
Many thanks.
Would like an a knowledgeable answer rather than an unqualified answer which is all I can come up even after copious research.
So... many years ago friend's parents placed their house "in trust" through one of those companies that do that kind of thing specifically. Ring-fenced assets, etc. The trustees being the parents and their children (adults). The trustees are the beneficiaries.
The house was sold off a few years later after the passing of one of them, and so the money from the house went into the trust as the protected asset rather than the house. At the same time that happened the remaining parent was removed as a beneficiary from the Trust so the trustees are now just the children (adults).
Now the other parent has died so they are looking at splitting that money out of the account held in trust and transferring it to their own accounts. Technically I guess they could have done it before but I suppose there are reasons they waited until now.
As far as I can tell, when the money is taken out of the ring-fenced trust account then it becomes something that the children are liable to pay capital gains tax on ?
Whilst it's essentially inherited money in reality, I think that the moment the house went into trust it ceased to be something that would be counted for inheritance tax but became an asset liable for CG tax. I bet the Trust Company salesman glossed over that fact...
The value of it is well under inheritance tax level, but enough that CG tax would be due.
It seems that they would have to inform the tax man themselves as well so would need to get it right, as I get the impression it's not written in the will specifically as an asset.
Am I barking up the wrong tree here or does my google-informed opinion sound right?
Many thanks.
You might need to seek further legal advice on the inheritance tax status of the trust. Only discretionary trusts are exempt from inheritance tax.
In other words, if it was managed like a pension fund where you have independent trustees who have the discretion to decide who the funds go to. They can follow the advice from the deceased's beneficiary note but they are not bound by it.
The fact that the parents are the trustees and have already named the beneficiaries as the children then I would have thought that this trust is not exempt from inheritance tax.
In other words, if it was managed like a pension fund where you have independent trustees who have the discretion to decide who the funds go to. They can follow the advice from the deceased's beneficiary note but they are not bound by it.
The fact that the parents are the trustees and have already named the beneficiaries as the children then I would have thought that this trust is not exempt from inheritance tax.
leef44 said:
You might need to seek further legal advice on the inheritance tax status of the trust. Only discretionary trusts are exempt from inheritance tax.
In other words, if it was managed like a pension fund where you have independent trustees who have the discretion to decide who the funds go to. They can follow the advice from the deceased's beneficiary note but they are not bound by it.
The fact that the parents are the trustees and have already named the beneficiaries as the children then I would have thought that this trust is not exempt from inheritance tax.
Yeah, that was my suggestion also, to hire a qualified person for the job though I'm not sure if it would be a solicitor or an tax accountant, maybe there are combinations of both out there. I've not had to deal with anything like that myself.In other words, if it was managed like a pension fund where you have independent trustees who have the discretion to decide who the funds go to. They can follow the advice from the deceased's beneficiary note but they are not bound by it.
The fact that the parents are the trustees and have already named the beneficiaries as the children then I would have thought that this trust is not exempt from inheritance tax.
As I understand it, all were trustees and equally all were beneficiaries - though now the only named people on there are the children. The parents names were effectively removed from the trust when the house was sold.
1. They need proper, paid advice on this from a competent trust solicitor.
2. Who is doing the annual accounts and tax for this trust?
3. Has the trust been properly registered with HMRC under the new rules? (This is separate from doing a tax return.)
4. From what's been set out here it looks as though there's some confusion as to the difference between a trustee and a beneficiary.
5. What sort of trust is this? There are different types, with different tax statuses.
6. Did I remember to say they need proper, paid advice on this from a competent trust solicitor...
2. Who is doing the annual accounts and tax for this trust?
3. Has the trust been properly registered with HMRC under the new rules? (This is separate from doing a tax return.)
4. From what's been set out here it looks as though there's some confusion as to the difference between a trustee and a beneficiary.
5. What sort of trust is this? There are different types, with different tax statuses.
6. Did I remember to say they need proper, paid advice on this from a competent trust solicitor...
For what it's worth, trusts only get a CGT annual allowance that's half the one for private individuals, so
£6,150 in 2022/23
£3,000 in 2023/24
£1,500 in 2024/24
In other words, diddly-squat.
Generally speaking CGT is payable whenever an asset leaves a trust (unless it's a bare trust). CGT applies whether the asset is sold by the trustees or distributed by them to a beneficiary.
£6,150 in 2022/23
£3,000 in 2023/24
£1,500 in 2024/24
In other words, diddly-squat.
Generally speaking CGT is payable whenever an asset leaves a trust (unless it's a bare trust). CGT applies whether the asset is sold by the trustees or distributed by them to a beneficiary.
Panamax said:
1. They need proper, paid advice on this from a competent trust solicitor.
2. Who is doing the annual accounts and tax for this trust?
3. Has the trust been properly registered with HMRC under the new rules? (This is separate from doing a tax return.)
4. From what's been set out here it looks as though there's some confusion as to the difference between a trustee and a beneficiary.
5. What sort of trust is this? There are different types, with different tax statuses.
6. Did I remember to say they need proper, paid advice on this from a competent trust solicitor...
Many thanks chaps for the advice. As I don’t know the answers to the questions above I’d totally agree with points 1 and 6, that was what said also though I have no ideas as to who to recommend to them.2. Who is doing the annual accounts and tax for this trust?
3. Has the trust been properly registered with HMRC under the new rules? (This is separate from doing a tax return.)
4. From what's been set out here it looks as though there's some confusion as to the difference between a trustee and a beneficiary.
5. What sort of trust is this? There are different types, with different tax statuses.
6. Did I remember to say they need proper, paid advice on this from a competent trust solicitor...
No easy answer for it as I suspected.
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