13.55-15.25 - Wooley Wickenden - Investing For Trustees New

TRUSTEE
INVESTMENT
PLANNING
• The reasons to incorporate trustee
investment as part of your service
delivery under adviser charging
• Trustee investment fundamentals
• Putting it into practice: Case study
PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

These slides and the presentation in which they are
used are put forward for general consideration only.
They are based on fictitious persons. No action must
be taken or refrained from based on their content.
Accordingly, neither Technical Connection Limited
nor any of its officers or employees can accept any
responsibility for any loss arising of whatever nature
to any person. Professional advice based on the facts
of each case is essential.

WHY WILL CLIENTS PAY FOR ADVICE?
(HOWEVER IT’S DELIVERED)
 Recognition of the limits of their own knowledge

 The adviser has expertise that the consumer doesn’t
possess or can’t get by “googling”
 The adviser makes them aware of the
need/risk/opportunity
SO WHATSOWILL
WHATTHEY PAYPAY
WILL THEY FOR?
FOR?
Basically, what they perceive as “difficult / complex”
EXPERTISE / TIMESAVING
AND IF WE ARE TALKING ABOUT TAX ….
 You can’t have missed that it’s in the

news
 Tax and tax planning polarises opinions
 Government committed to action
 So……….

Tax Avoidance
What’s going on?

A LOT!
 General anti-abuse rule (consultation)

 £50,000/25% income tax relief cap (consultation)
 “Enhanced DOTAS” :more advance information and
negative publicity
 (Lifting the lid on tax avoidance)
 Continued HMRC success in tribunal/court cases
 Public opinion (Times campaign)

FINANCIAL PLANNING
GAAR should not affect “the centre ground of tax

planning”
Opportunities to reinforce the power and

effectiveness of “acceptable” financial planning for
individuals , businesses and trustees

TRUSTEE INVESTMENT ADVICE:
A “PERFECT STORM”?
• High degree of difficulty

• Adviser charge justifiable
• Relatively high trustee tax rates
• Trusts are an essential part of estate
planning

TRUSTEE INVESTMENT ADVICE :
A “PERFECT STORM” ?
• Trustees must take investment advice
• Solicitors and accountants rarely have the

necessary financial planning skills
• Strong collaboration potential for advisers

TRUSTEE INVESTMENTS – A GROWING
MARKET
TRUST STATISTICS
• 176,000 made S/A returns in 2009/10

• Trust income £2,650m in 2009/10
£900m £1,750m
iip discretionary
• Income tax £750m in 2009/10
£150m £600m
iip discretionary
• Chargeable gains £2,045m in 2009/10

BARRY’S WILL TRUSTS
• Died on 17 May 2005

• 2 years prior to death gifted £20,000 to each
of his four grandchildren
• Left
- a widow -
two children -
four grandchildren -
two great grandchildren
BARRY’S ESTATE
• Jointly held property passes directly to Britney

- house -
contents
• Discretionary Will Trust for investments up to
available nil rate band
• Life Interest Will Trust for balance of investments
- life interest to Britney
- capital to children in equal shares on
Britney’s death

UNDERSTANDING THE FUNDAMENTALS
TRUSTEE ACT “IMPERATIVES”

TRUSTEES MUST TAKE INVESTMENT ADVICE
• Trustee Act 2000

• Wide implied investment powers
– if not specifically provided
• Statutory investment criteria
• Applies to all trusts whenever created

STATUTORY INVESTMENT CRITERIA
• Diversification
• Suitability
AND
• Obtain and consider proper advice

“PROPER ADVICE”
Advice of a person who the trustees reasonably believe to

be qualified to give it by his (or her)
Ability in
+
Practical experience of financial + other matters
TRUST TAXATION

TRUSTEE TAXATION
Income Tax
IIP (including Bare Trust)
Income taxed on IIP

beneficiary at marginal rate

TRUSTEE TAXATION
Income Tax
IIP (including Bare Trust) Discretionary Trust
Income taxed on IIP Income taxed on trustees at:-

beneficiary at marginal rate
- Standard rate on first £1,000
- 42.5% on dividend income
50% on other income

TRUSTEE TAXATION
Income tax – other relevant points
• Income assessed on settlor if
“settlor- interested” trust ie: -
settlor a beneficiary settlor’s spouse
a beneficiary
- not widow/widower
• £100 rule (on vested or distributed income)
- Beneficiary is minor unmarried child
of settlor
- Gross income (or income on all
gifts) exceeds £100
DISCRETIONARY TRUST – INCOME TAX DETAIL
2 STAGE PROCESS

DISCRETIONARY TRUST:TRUSTEE TAX
Discretionary Trust - Income tax
Income received
Discretionary Trust
Trustee income tax

50%/42.5% (if over
£1,000)

INCOME DISTRIBUTION
Discretionary Trust - Income tax
Income received
Discretionary Trust
Trustee income tax

50%/42.5% (if over
£1,000)
Income distribution:
trustees must have paid 50%
income tax
Income taxed on beneficiary as

trust income
STAGE 1:
RECEIPT OF INCOME

THE DISCRETIONARY TRUST “INCOME TAX TRAIL”
Interest
Trustees receive £80 net interest
• £20 income tax already deducted
• Trustees pay extra £30 to HMRC
• Trustees are left with £50 net income
Note:
1. Assumes other trust income absorbs
£1,000
2. Applies even though settlor-interested
trust
3. 50% 45% from 6.4.2013
THE DISCRETIONARY TRUST “INCOME TAX TRAIL”
Dividends:
Trustees receive £80 net dividend
• £8.89 income tax deemed to have been paid
• Trustees pay extra £28.89 to HMRC
• Trustees are left with £51.11 net income
Note:
1. Assumes other trust income absorbs £1,000
2. Applies even though settlor-interested trust
3. 42.5% 37.5% from 6.4.2013
STAGE 2:
INCOME DISTRIBUTION

DISTRIBUTION OF SAVINGS INCOME (2012/13)
50% 40% 20% 0%
£ £ £ £
Receives 50 50 50 50
Grossed-up 100 100 100 100
Tax bill 50 40 20 0
(Pay) reclaim - 10 30 50
Net 50 60 80 100

DISTRIBUTION OF DIVIDENDS (2012/13)
Income received by trustees [£88.89 grossed-up

equivalent]
£80
[42.5% of £88.89 = £37.78

Income tax of £28.89 paid
£37.78 less tax credit of £8.89
to HMRC by the trustees so tax of £28.89 to pay]
Income remaining £51.11 [£80 less £28.89]

Income received by trustees [£88.89 grossed-up
equivalent]
£80
[42.5% of £88.89 =
Income tax of £28.89 paid 37.78. £37.78 less tax
to HMRC by the trustees credit of £8.89 so tax
of £28.89 to pay]
Income remaining £51.11 [£80 less £28.89]
Distribution to Trustees` extra tax on

beneficiary £40 distribution £11.11
[£80 available less £40.00 [Total liability £40.00 less £28.89
(ie. 50% of £80] already paid]
£ £
Net trust income 80.00
Tax on dividend receipt 28.89
Tax on income distribution 11.11
40.00
Net to beneficiary 40.00

INCOME DISTRIBUTION OUT OF DIVIDEND
INCOME
Beneficiary receives trust income

50% 40% 20% 0%
£ £ £ £
Grossed-up 80 80 80 80
Tax bill 40 32 16 0
Net 40 48 64 80

INCOME DISTRIBUTION OUT OF DIVIDEND
INCOME
Beneficiary receives trust income
50% 40% 20% 0%
£ £ £ £
Grossed-up 80 80 80 80
Tax bill 40 32 16 0
Net 40 48 64 80
ORIGINAL GROSSED-UP INCOME £88.89

PFS/SLIDES/TRUSTEE INVESTMENTS 10 2012
A SOLUTION TO THE PROBLEM? -
ADVANCEMENT OF CAPITAL
• Trustees invest for equity-based capital growth

• Use trustees’ annual CGT exemption to release
capital and appoint
• Care over disguised dividend distributions - amounts
and timing of accumulations/ advancements
• Must be power to advance in trust
• But…tax planning subject to investment
suitability

SUPPLEMENTING INCOME WITH CAPITAL:
DETAIL
Assuming capital growth year-on-year of same amount

as net dividend
At best At worst
Growth 80 80
Tax (exempt) - (@ 28%) 22.40
Net 80 57.60

ANOTHER SOLUTION TO THE PROBLEM?
• Trustees in UK/Offshore bond

• No trustee taxation of income or gains
• No underlying investment “constraints”
• Trustees withdraw/encash (care which)
• Trustees advance capital
• Must be power to advance capital

TRUST CAPITAL TAXED AS INCOME?
• Original Revenue view - purpose of payment

• Brodies Will Trustees
• Stevenson -v- Wishart (1987)
• Don`t advance if in exercise of a specific
direction to augment income under trust

TRUSTEES
Capital Gains Tax
Bare Trusts
Beneficiary assessed:
• £10,600 A/E
• then 18%/28% as
appropriate

TRUSTEES
Capital Gains Tax
Bare Trusts All other Trusts
Beneficiary assessed: Trustees assessed:
• £10,600 A/E • £5,300 A/E *
• then 18%/28% as • then 28%
appropriate
* Pro rata reduction according to number of

trusts created by the same settlor – subject to
minimum of £1,060
TRUST TAXATION:INHERITANCE TAX
Inheritance Tax
Which type of trust?
- IPDI
- Bare Trust
- Trust for disabled
• PET if lifetime
• Capital taxed as part of
taxable estate of
beneficiary entitled to
income
TRUST TAXATION:INHERITANCE TAX
Inheritance Tax
Which type of trust? All other trusts eg.
discretionary trust
- IPDI
- Bare Trust
• CLT
- Trust for disabled
• Periodic charge
• PET if lifetime • Exit charge
• Capital taxed as part of
taxable estate of
beneficiary entitled to
income
RELEVANT PROPERTY CODE
• CLT on entry
- possible 20% on excess over NRB
- 7 year cumulation
• Periodic charge at 10 year anniversary
- Trustees have NRB
- Maximum charge 6%
- Trust fragmentation (Rysaffe)
• Exit charge when property leaves trust – IHT
based on
- charge on entry (first 10 years) -
charge at last 10 year anniversary
RATIONALE
Trust is treated as a person and charges broadly

the same as if individual had owned the
property….and disposed of it every 10 years

EXAMPLE - JOE
Periodic charge
• Joe creates discretionary trust for
£250,000 on 1/9/12
• No CLTs in last 7 years
• On 1/9/22, value of trust £750,000
• NRB £500,000
• IHT: £250,000 @ 6% = £15,000
• Equates to 2% on £750,000
EXAMPLE - JOE
Exit charge
• Property (£600,000) distributed in year 8 =
No charge
• Property (£1,000,000) distributed on 1/9/28
24/40 x £1m x 2% = £12,000

RELEVANT PROPERTY CODE - COMPLICATIONS
• Added property
• Related settlements
• Income accumulations
• Inter-trust transfers
• Property leaving the trust
• 7 year cumulation periods – pre-trust
• Creation – recategorised PETs

MAKING THE MOST OF THE NIL RATE

BAND

NIL RATE BAND BASICS
• Nil rate band £325,000 in 2012/13

• Nil rate band frozen until 5 April 2015
• Husband and wife will have
COMBINED nil rate band of £650,000
• Can use up to £325,000 on first death or
transfer percentage not used to survivor for use
on second death

BARRY & BRITNEY
• NRB when Barry died was £275,000

• Used £74,000 in 7 years before death
• Used a further £201,111 on death by gift
to discretionary trust

BARRY & BRITNEY
• They have combined NRB of £600,000

(£275,000 + £325,000)
• TNRB did not exist in 2005 but
• Had all estate passed to Britney then total
NRB = £650,000

NEW NIL RATE BAND PLANNING
• Can only transfer one nil rate band

however many spouses you have had in
past
• Applies on second deaths from 9/10/07
• Can transfer nil rate bands of spouses
who died before 9/10/07 – this affects
IHT calculation of widow/widower
• PRs make election within 2 years of
second death
(TWICE) MARRIED MAN WHOSE FIRST
WIFE HAS DIED
H W1 - Did not use NRB
H W2

(TWICE) MARRIED MAN WHOSE FIRST
WIFE HAS DIED
PLANNING AS FOLLOWS:
1. H dies first
H must use NRB on first death
gets two NRBs (H and hers)
W2
2. W 2 dies first
W2 must use NRB on first death
H gets two NRBs (H and unused from W1)
NB: You can only increase NRB by a maximum of 100%

TWO NIL RATE BANDS EACH?!
• Second marriage of both current husband and

wife
• Previous spouses both dead
H W
£650,000 £650,000

A TNRB ALTERNATIVE /FORERUNNER
THE DISCRETIONARY WILL TRUST

DISCRETIONARY WILL TRUST
H W
NRB Trust
• Loans
Spouse a
potential • S103 FA 86
beneficiary • SP Bonds
• Deeds of variation

EXISTING WILL INCLUDES TRUST
Will
Trust

EXISTING WILL INCLUDES TRUST
H Spouse exemption
W
2 years
Will
Trust
• If discretionary trust, trustees can appoint
benefits absolutely to spouse
• If appointment within 2 years, treated as
made by deceased
• NRB of husband NOT used
TNRB
Does the transferable nil rate

band make IHT planning on
death of the first of a couple
to die unnecessary?

IHT PLANNING POST TNRB
Married couples with estates of up to combined

NRB
Mr and Mrs Osborne

House £450,000
Investments £100,000

MR AND MRS OSBORNE
• No lifetime planning necessary

• No NRB first death planning generally
necessary
UNLESS………………

REASONS TO USE NRB ON FIRST DEATH
• Second marriage and different children to benefit

from half share on second death


• Desire to move assets away from surviving
spouse (local authority care charge)


• You think assets given on first death will increase
in value at a greater rate than the increase in nil
rate band


rate band
• Divorce /insolvency protection for children


rate band
• Divorce /insolvency protection for children
• You qualify for double NRB despite still being
married

USING MAIN RESIDENCE IN FIRST DEATH
PLANNING
• It can be complicated because need to

secure survivor’s tenancy but avoid an IIP
• Use IOUs or Charge Scheme

SPOUSAL PLANNING ON FIRST DEATH; A
SUMMARY
• Consider transferable nil rate band first: effective

and simple
• Consider alternatives if circumstances dictate
• Remember , first death planning with residential
property “fraught”
• The most common objection to using TNRB is
lack of control over “asset destination”….there is
an answer………

PLANNING FOR SPOUSE ON FIRST DEATH
H W
• Spouse exemption
• Full transferable
NRB available
• No control

FIRST DEATH SPOUSE PLANNING :THE EASY WAY
H W
• Lifetime gifts to
children
• PET – survive 7 years
gift drops out
• GWR/POAT issues
• No control to H over
“asset destination”

OVERCOMING THE “NO CONTROL” OBJECTION
THE QUESTION
• Can you keep control – even after death?
• Yet use the transferable nil rate band?

USING WILL TRUST BUT RETAINING
TRANSFERABLE NRB
H
- IIP Trust for wife
- power to appoint to children
• Wife has IPDI

• Spouse exemption
• No use of NRB

USING WILL TRUST BUT RETAINING
TRANSFERABLE NRB
H
- IIP Trust for wife
- power to appoint to children
Trustees appoint to
children absolutely
• PET by wife
• 7 year survival gift
drops out
• Full transferable NRB
still available
• High degree of difficulty

• Adviser charge justifiable
• Relatively high trustee tax rates
• Trusts are an essential part of estate
planning

• Trustees must take investment advice

• Solicitors and accountants rarely have
the necessary financial planning skills
• Strong collaboration potential for
advisers

LSA2007 : WHAT ARE THE RISKS FOR LAWYERS?
• Impact from greater competition with strong

national brands eg. Co-op
• Fall in market share for established legal firms
• Smaller, non-progressive firms may go out of
business
• Dual authorisation and complex compliance
requirements may make ABSs
prohibitive….so…..
• Joint ventures may offer similar benefits within
a simpler operating model

OPPORTUNITIES FOR FINANCIAL ADVISERS
• Potential to offer legal services or become part

of a firm that offers ‘one stop shop’ services
• Collaborations become easier
• Scope for increased referrals from a broader
client range
• Introduction of Legal Ombudsman heightens
need for trustee investment advice

INTRODUCTIONS AND REFERRALS FOR
FINANCIAL ADVICE POST-RDR
The new “post RDR” adviser categorisation

(Independent / Restricted) has led professional
bodies to review stance on referral guidelines

INTRODUCTIONS AND REFERRALS
FROM ACCOUNTANTS
• Institute of Chartered Accountants for England

and Wales (ICAEW) will allow accountants to
refer to restricted advisers
• Must first make a ‘case-by-case’ assessment of
suitability (not necessary for referral to an
‘independent’ adviser)
• Consistent with existing code of ethics

INTRODUCTIONS AND REFERRALS
FROM SOLICITORS
• Solicitors Regulatory Authority (SRA)

consultation on independent advice issued in
July
• Sets out three possible options for reform of
existing outcome-based guidelines contained in
Chapter 6 Solicitors Code of Conduct
• SRA preferred option is the third – allows
clients to make informed choice having first
discussed with solicitor

ADVISER CHARGING AND TRUSTS
A FEW THOUGHTS ON THE POTENTIAL

TAXATION IMPLICATIONS IN RELATION TO
ADVISER CHARGING ON PRODUCTS IN TRUST

ADVISER CHARGES AND TAX IN RELATION TO
FINANCIAL PRODUCTS IN TRUST
The basic model
Paid from trust? Poss TRUST

GWR but likely
“carve out” FINANCIAL CASH
PRODUCT ACCOUNT
Charge for Settlor
initial
Possible tax (2)(3) No
advice
tax
Paid from Paid by

own funds: Settlor? Further Charge for ongoing
No tax gift advice
(VAT?)
(Poss N.EXP)

TRUSTEE INVESTMENT:CASE STUDY
PUTTING IT INTO PRACTICE:

APPLIED EXPERTISE

BARRY’S WILL TRUSTS
• Died on 17 May 2005

• 2 years prior to death gifted £20,000 to
each of his four grandchildren
• Left
- a widow
- two children
- four grandchildren
- two great grandchildren
THE FAMILY
Britney (76)
Mike - Gale Sheila - Gary

(52) (49) (50) (51)
Reece - married George -

Isla Aiden (26)
(29) married (29)
(24)
Josh (5) Primrose (6)
• Gale has 2 adult children from a previous marriage

• Gary and Sheila’s marriage is not stable
BARRY’S ESTATE
• Jointly held property passes directly to Britney

- house -
contents
• Discretionary Will Trust for investments up to
available nil rate band
• Life Interest Will Trust for balance of
investments
- life interest to Britney
- capital to children in equal shares on
Britney’s death

BARRY’S ASSETS ON DEATH
• House £600,000 in total (50% interest)

• Contents £100,000 in total
(50% interest)
• Investment portfolio £500,000
• National Savings Certificates £85,000
• Building Society cash deposit account
£166,000
HOW THE ESTATE DEVOLVED
Barry Britney
Survivorship
• House
• Contents

Barry Britney
Survivorship
• House
Discretionary Trust • Contents
Available nil rate band
£201,000 (ie. £275,000 less
£74,000 previous lifetime
gifts-£80,000-£6,000 ann
ex)
£85,000 NS certs £116,000

BS cash
Barry Britney
Survivorship • House
• Contents
Discretionary Trust Life Interest Will Trust (IPDI)

Available nil rate band - Britney life interest
£201,000 (ie. £275,000 less
- Children reversionary
gifts ;£80,000-£6,000 beneficiaries to capital
annex) - Treated as transfer to
Britney for IHT
£85,000 NS certs £50,000 BS cash £116,000
BS cash £500,000 Portfolio
HOW THE ESTATE DEVOLVED (CURRENT VALUES)
Barry Britney
Survivorship • House
• Contents
Discretionary Trust Life Interest Will Trust (IPDI)

Available nil rate band - Britney life interest
£201,000 (ie. £275,000 less
- Children reversionary
gifts; £80,000-£6,000 beneficiaries to capital
annex) - Treated as transfer to
Britney for IHT
£85,000 NS certs (£120,000) £50,000 BS cash (£63,000)
£116,000 BS cash (£140,000) £500,000 Portfolio (£542,000)
BRITNEY’S CURRENT ESTATE
House: £1.2m
Contents: £200,000
Own investments £100,000
Life interest in
Will Trust : £63,000 (cash)
£542,000 (investment portfolio)

THE FAMILY’S OBJECTIVES
Subject to considering the “Ground rules”

i.e. the essential legal and tax issues:
• Improving Britney’s income without
putting capital at risk
• Using the trusts to help school fees of Josh and
Primrose at age 11

THE FAMILY’S OBJECTIVES
• Protection against a divorce claim from Gary

(Sheila’s husband)
• Minimising IHT on Britney’s death
• Subject to the main objectives: minimising
tax through “tax smart” investment/planning
• And subject to achieving the main objectives, is it
possible to break up and distribute the assets of the
life interest trust?

MEETING OBJECTIVES
1. IMPORTANT AND LEGAL TAX ISSUES

Legal issues:
• Powers of investment? Wide
• Invest for the benefit of all beneficiaries
- discretionary trust -
life interest trust
• SIC
- diversification
- suitability
- advice
MEETING OBJECTIVES
1. IMPORTANT AND LEGAL TAX ISSUES

Tax fundamentals:
Discretionary trust
- 50%/42.5% income tax -
CGT annual exemption (reduced) -
then 28% CGT
IIP Trust:
- Income taxed on Britney -
CGT annual exemption (reduced)
then 28% CGT
MEETING OBJECTIVES
In determining the strategy keep in mind:

• There are two trusts
• Desire not to put capital at risk
• Tax saving can deliver “Alpha”

MEETING OBJECTIVES – IMPROVING BRITNEY’S
INCOME
Life Interest Trust
• Britney entitled to income

• Pays income tax at marginal rate(s)
• Trustees could consider advancing capital
- trustees’ power to advance
- otherwise consent of remaindermen required
• Income tax on capital?
- irregular amount -
irregular time - document as
capital - should be taxed as capital

BREAKING UP TRUSTS
• Samson v Peay
• Discretionary Trust – not possible
• IIP Trust
- are parties all sui juris?
- if so value interests and break trust -
BUT reversionary interest only if beneficiaries
alive so their interest not ascertained so
- could advance capital (power?) or
- could take out indemnity insurance or
- could take risk

BREAKING UP TRUSTS
IIP
Income Capital
Capital value Value of reversionary

to Britney interest to Sheila and
Mike

INCOME
Discretionary Trust
Trustees control who gets income/capital

• Britney a beneficiary
• Advance capital
- no income tax -
CGT? Use annual exemption or hold-over relief
• Exit charge unlikely
• Trustees could make loans?

INCOME
Trustees making loans to Britney
- Trustees realise cash (CGT?)
- loan to Britney – do trustees have
power?
- Britney spends loan
- Loan repayable on her death: taxable
estate reduced
- Care: s103 Phizackerley
- Avoids any exit charge risk
USING THE TRUSTS FOR SCHOOL FEES
• Use discretionary trust not IIP trust

• Are Josh/Primrose beneficiaries?
• Power to pay income/advance capital?
• Appoint income to use their personal
allowances – no reclaim of NRTC

And with capital:
• Appoint capital – not taxable in
beneficiary’s hands
- Use trustees’ CGT annual exemption
(£2,650) -
Use 5% withdrawal from bond (see
“Investments” next)
• Exit charge on capital advancement ?
IHT charge unlikely
DISCRETIONARY
TRUST
Powers? to Use trustees’
pay Josh/Primrose annual CGT
exemption or use
5%s from Bond
Income (use beneficiary’s Capital (no tax

personal allowance) charge on
beneficiary)
Care: dividend income

“COMPETING OBJECTIVES”: THERES ONLY SO
MUCH TO GO AROUND
• The more that objectives other than improving

Britney’s income are worked on , the less will be
available to increase Britney’s income
• Tax minimisation can help to increase available funds
through “Tax Alpha”
• A “tax smart” investment strategy can help
• A key role for the financial planner

MEETING OBJECTIVES – IMPROVING TAX
EFFICIENCY OF TRUSTS
IIP Trust
• Income taxed on Britney
• Not a higher rate taxpayer
• Income enhancement is a prime objective
• Low yield/growth = pressure
• Invest for capital growth and appoint capital
(on tax grounds)
- use trustees’ annual CGT exemption
- care capital taxed as income
- care investment suitability and investment risk
MEETING OBJECTIVES – IMPROVING TAX
EFFICIENCY OF TRUSTS
Discretionary Trust
• Income taxed at 50/42.5%
• Appoint life interest to Britney?
- do trustees have power?
- satisfies Britney’s income needs
• Invest for capital growth
- reduces income
- use CGT annual exemption -
right investment decision?
• Invest in tax-efficient investments such SP Bond
- non-income producing
- tax free switching
- 5% tax-deferred withdrawals
MEETING OBJECTIVES – PROTECTION AGAINST
DIVORCE
• No claim yet on IIP trust but could be in

future
• Could settle reversionary interest on
discretionary trust – but care - deprivation
• Sheila a beneficiary of discretionary trust
• No direct claim by Gary but Court may
attribute value if previous regular appointments by
trustees
• Tell trustees not to appoint – perhaps
appoint to children instead of to Sheila
IHT ON BRITNEY’S DEATH
Personal Estate IIP Trust capital

£1.5 million £605,000
Total estate £2,105,000
IHT * £713,200
Payable by estate £508,218
(LPRs):
Trustees: £204,981
* One NRB – Barry used his

REDUCING IHT
• Britney could release life interest
- PET
- 7 year survival: out of estate -
but she would lose income
• IHT planning difficult on estate – mainly
house/contents;
• Possibly: Downsize? Equity release? plan with cash
• Joint occupation? Full market rent ? Unlikely
• Discretionary trust – assets already outside estate
• Life cover : Care cost? Beneficiary funded? Keep
policy outside IIP trust.
IN SUMMARY
• Need to prioritise the relative importance of competing objectives

with limited resources
• Tax planning can increase available funds
• “Tax smart” investments can help to deliver greater capacity to
meet objectives
• Tax effectiveness must always be secondary to investment
suitability and “risk appropriateness”.
• For trustee investment – always consider the legal “ground
rules” first
• Try to balance income provision with capital reservation
• Trustee investment represents an excellent market for
- professional collaboration -
strongly justifiable (and profitable) adviser charging
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CONTACT
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Tony Wickenden
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Tony.wickenden@technicalconnection.co.uk
0207 405 1600

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TRUSTEE

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

 Recognition of the limits of their own knowledge

Basically, what they perceive as “difficult / complex”

 You can’t have missed that it’s in the

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

 General anti-abuse rule (consultation)

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

GAAR should not affect “the centre ground of tax

Opportunities to reinforce the power and

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

• High degree of difficulty

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

• Trustees must take investment advice

• Solicitors and accountants rarely have the

• Strong collaboration potential for advisers

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

• 176,000 made S/A returns in 2009/10

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

• Died on 17 May 2005

• Jointly held property passes directly to Britney

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

TRUSTEE ACT “IMPERATIVES”

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

• Trustee Act 2000

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Advice of a person who the trustees reasonably believe to

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Income taxed on IIP

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Income taxed on IIP Income taxed on trustees at:-

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Trustee income tax

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Trustee income tax

Income taxed on beneficiary as

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

50% 40% 20% 0%

Grossed-up 100 100 100 100

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Income received by trustees [£88.89 grossed-up

[42.5% of £88.89 = £37.78

Income remaining £51.11 [£80 less £28.89]

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Income remaining £51.11 [£80 less £28.89]

Distribution to Trustees` extra tax on

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

Beneficiary receives trust income

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012

ORIGINAL GROSSED-UP INCOME £88.89

• Trustees invest for equity-based capital growth

PFS/SLIDES/TRUSTEE INVESTMENTS (2) 11 2012