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Trust (also known as a settlement) is treated as ... person. Lernen beginnen
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powers and duties of trustees Trust must have more than one trustee. Trustees act in representative capacity in best interest of beneficiaries.
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Definition of trust. An arrangement whereby... 4cz Lernen beginnen
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PROPERTY is transferred by a settlor | to the TRUSTEES | to be held FOR THE BENEFIT of one or more of specified beneficiaries | on specified terms in the TRUST DEED. PTBD
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Classification of trusts for capital taxes: 2 Lernen beginnen
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Discretionary trust. | Interest in possession trust.
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Discretionary trust essence: 2cz Lernen beginnen
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The beneficiaries have NO LEGAL RIGHT to benefit from the income or capital of the trust. | Any distribution of income or capital out of the trust is at the COMPLETE DISCRETION of the trustees.
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Interest in possession trust features: 3 Lernen beginnen
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IIP exist. | Life tenant has legal right to benefit from the income of the trust. | Trustees must distribute life tenant's FULL ENTITLEMENT every tax year.
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Trustees are given legal title to 2 property types: 2 Lernen beginnen
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Income is distributed to the INCOME BENEFICIARY. | Capital is distributed to CAPITAL BENEFICIARY.
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A trust separates beneficial and legal ownership of assets. It enables... Lernen beginnen
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the benefit of owning assets (income), to be enjoyed by someone (the beneficiary) other than the legal owners (the trustees).
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Trust can provide an income from the asset for one group of beneficiaries while... For example... Lernen beginnen
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while preserving the capital for others, for example, setting up an IIP trust to protect interest of children in situation where spouse remarries. To transfer assets under will to IIP trust with spouse (life tenant) entitled to income for life and capital assets passing to children (remaindermen) on spouse's death.
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Trust can provide a flexible arrangement where different beneficiaries have different needs. For example... Lernen beginnen
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a settlor creates a discretionary trust whereby trustees have discretion to distribute income or assets to children by reference to individual needs. Trusts can provide a means for an older generation to protect and make financial provision for next generation or grandchildren.
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Income tax is paid by trustees under ... on income... trustees = separate taxable person Lernen beginnen
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under self-assessment | on income generated by the trust.
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IPP. Annuitant is entitled to... Lernen beginnen
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to FIXED AMOUNT of INCOME each year (annuity).
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IPP Life tenant is entitled to... Lernen beginnen
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the remaining TRUST INCOME.
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IPP. Beneficiaries are taxed on their entitlement even if... Lernen beginnen
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IPP. Income maintains nature in beneficiaries' hands, that is... t a x r a t e s Lernen beginnen
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saving income and other income grossed up by 100/80 with a 20% tax credit; | dividend income grossed up by 100/92.5 with 7.5 tax credit.
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Discretionary trust. Beneficiaries are taxed on income... Lernen beginnen
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actually received in tax year.
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Discretionary trust. Beneficiaries' income is always gross up at... Lernen beginnen
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100/55 with 45% tax credit.
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Discretionary trust. Beneficiaries' income is taxed as... Lernen beginnen
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2 Lernen beginnen
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Qualifying IIP (Immediate post death interest trust, IPDI). | Non-qualifying IIP (Set up during settlor's lifetime trusts). Note: an interest in possession trust created on the death of a settlor is sometimes referred to as an ‘immediate post death interest (IPDI) trust’ or a ‘qualifying interest in possession (QIIP) trust’.
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Type of trust that can be either Discretionary or IIP trust. Lernen beginnen
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Relevant property trust (RPT).
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IHT. All lifetime gifts into trust are CLTs into ... trust. Lernen beginnen
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Relevant property trust. The trustees may be liable to pay IHT in form of... 2 Lernen beginnen
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Principal charge (based on a principal). | Exit charge (when capital is distributed).
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IHT. How often a Principle charge is paid? Lernen beginnen
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IHT. What is the rate of Principal charge and Exit charge? Lernen beginnen
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The trustees are subject to CGT on chargeable disposal of assets. Trustees base cost is... Lernen beginnen
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market value less gift relief.
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Trusts and CGT. What relief is available on ANY asset? Lernen beginnen
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As there is an immediate charge to IHT.
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Trusts and CGT consequences of death? Lernen beginnen
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No CGT consequences on death; not a chargeable disposal. Trusts acquire assets at PROBATE VALUE.
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Trusts and CGT. Chargeable gains on disposals by trustees. AEA and tax rates: 1+2 Lernen beginnen
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half of individual AEA (£6,150). | 20% and 28%.
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Trustees pay out CGT out of ..., under ... rules. Lernen beginnen
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out of trust fund | under self-assessment rules.
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When Immediate post death interest trust is distributed? What kind of value is used? 2cz Lernen beginnen
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Interest ends on death of life tenant. | Immediate post death interest trust (IPDI). Remainderman receives assets at MARKET VALUE of life tenant's death. There is no CGT, tax free uplift to market value (not examinable).
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CGT. Assets distributed out of any trust (except IPDI) are treated as... Lernen beginnen
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However a Gift relief can be claimed on any asset as IHT charge arises.
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Tax planning opportunities of trusts: # Lernen beginnen
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Lifetime gifts reduce settlor's estate on death. | Appreciation in value outside the settlor and beneficiaries estates. | Non-tax payers beneficiaries can be choose by DT trustees.| 6%- insignificant principal and exit charges. LAN6
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What tax credits will be for payments from trusts? ? Lernen beginnen
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IIP trust - 7.5% tax credit. | Discretionary trust - 45% tax credit. The income to which beneficiary is entitled must be grossed up at 100/92.5; | The income received must be grossed up at 100/55. + There is no £2,000 nil rate band for dividends received from a discretionary trust as these payments are non-savings income.
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IIP trusts are commonly used in a will where... Lernen beginnen
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one spouse dies and there is a surviving spouse and children. The surviving spouse is named as the life tenant and is entitled to income generated by assets (and possibly a right to live in a family home), but has no access to the actual capital assets. The children are usually the remaindermen and will receive the capital assets on the death of the surviving spouse. This form of trust is a popular agreement to protect the capital assets for the benefit of the children where, e.g. the spouse remarries.
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