Trust & Estate Planning

The only time to plan for inheritance tax is now

Global Reach of UK Inheritance Tax for Expatriates

Most people retain their domicile, even if they have been living abroad for a prolonged period. It’s a common misconception among UK expatriates that only UK assets will be subject to UK inheritance tax. Unfortunately, because the UK operates on a worldwide basis of taxation, this means a persons worldwide estate will be subject to inheritance tax.

Inheritance Tax: Easy to Pay, But Simpler to Reduce.

Trusts can be effective when it comes to Inheritance Tax (IHT) planning. IHT charges can be as high as 40%, although there is a tax-free allowance which protects the first £325,000 of any estate.

Using a trust allows you to ringfence your assets outside of your IHT chargeable estate, as long as various conditions are met. You can also still maintain some control over those assets by acting as one of the trustees, if created during your lifetime.

Trusts and Estate Planning: What Needs to be Considered?

When it comes to planning, how you’d like to pass on the assets and capital in your estate, there are some important financial tools which you can use. Trusts can be very effective when undertaking estate planning.

What is a Trust? Demystifying the Complexity

A Trust is a legal arrangement which holds your assets in a secure place for the benefit of your beneficiaries. Tax saving is not the only reason why Trusts are created. The other purposes for some people are to protect funds for vulnerable beneficiaries including young children, protect assets from other family members or shield assets from bankruptcy and creditors.

Trusts can also help you maintain control over the assets you’ve gifted. A good example is through your Will. If you’ve remarried and want to provide a home for your spouse but ultimately let any children from your first marriage inherit the property, a trust can facilitate this, enabling your spouse to continue living in your shared home until their death, when it then passes to the children from your first marriage.

Wills: Can Be Very Effective When Used in Conjunction with Trusts

Wills contain your personal set of instructions which dictate how you’d like your estate (all those assets that are in your name at the date of your death) to pass on. A Will can also appoint guardians to minor children and detail funeral wishes, something a trust can’t do.

Choosing The Right Trust Depends On Your Objectives

Different trusts offer various benefits, and tailoring your choice to align with your objectives is key to effective estate planning. It’ highly recommend you consult with a financial advisor or estate planning professional to ensure your trust selection serves your long-term interests and secures your legacy.

A Bare Trust

The most straightforward type of trust where the beneficiary receives all the assets in the trust when they turn 18 (16 in Scotland), if they are mentally capable.

A Non-resident Trust 

A trust where all the trustees are outside the UK. Such a trust may attract little or no tax or reduced tax on the trust’s income.

Trust for a Vulnerable Person 

A type of trust that provides special tax treatment for disabled people or children. If a vulnerable person, such as a person with disabilities or an orphaned child, is the sole beneficiary of the trust, there is generally less tax to pay on the trust’s income and profits.

A Discretionary Trust 

Gives the trustees absolute discretion to decide how the trust’s assets are distributed to the named beneficiaries. Parents may set up this trust for their children and allow the trustees, who could be the grandchildren’s parents, to decide how the income and capital should be divided.

An Interest in Possession Trust

Allows the beneficiary to immediately receive income from the trust, but not the assets generating that income. This trust is commonly used when a person remarries after divorce but wants their investments to go to their children from the first marriage.

Common Reasons For Trusts

Understanding the various motivations for placing your offshore investments into a trust is essential, as it allows you to evaluate the potential advantages, such as asset protection, tax optimization, and estate planning, which can play a significant role in safeguarding your legacy and achieving your long-term goals.

  • Probate can be a lengthy process depending on where your investment assets are based. By using a trust, you can reduce the time and cost it takes for beneficiaries to have access to assets, which can be vital in the instances where liabilities need to be settled upon death.

  • Trusts can offer advantages over outright gifts since the donor can exercise a degree of control over their assets once they have been given away. If the plan is written in a flexible trust, the trustees can be instructed to hold the investment until the beneficiaries reach a certain age or for future children or grandchildren.

  • For individuals who are domiciled or deemed domiciled in the UK, UK IHT applies to their worldwide assets and therefore includes offshore investments. Placing investments under certain trusts can enable some or all of the proceeds to fall outside of the settlor's estate for UK IHT purposes.

  • An individual who has been a long-term resident of the UK for Income Tax purposes, but is not UK domiciled or deemed UK domiciled could consider placing their offshore investment in an Excluded Property Trust. This can avoid the investment being considered for UK IHT valuation purposes even if the individual does eventually become UK domiciled.

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