Renting out a house that is 'in trust'

WoodyAllenJesus

Hi All,
My parents are hoping to buy a second home to move in to (their current one not being suitable as they age). They hoped to rent out their current house to provide an income.

Their solicitor has told them that as their current house is 'in trust' they will have to pay 50% tax on any income AND that income will go into the trust rather than be theirs. He seems to be shooting from the hip and has 'gone away to check' but things are moving quickly with the sale of the second house.

Does anyone have any experience of this or can confirm/deny this to be the case? They are considering pulling out of the deal on the second house but also feel they're not armed with full info.

Many thanks!

00ec25

you will have to provide more info re the trust for anyone to be able to answer this q

presumably if your parents are paying 50% income tax rate they can afford to employ a better solicitor to advise them ?

Thrugelmir

WoodyAllenJesus wrote: »

Their solicitor has told them that as their current house is 'in trust' they will have to pay 50% tax on any income AND that income will go into the trust rather than be theirs. He seems to be shooting from the hip and has 'gone away to check' but things are moving quickly with the sale of the second house.

Correct. The income will belong to the trust and be taxed at 50% within the trust. The first £1,000 is tax free.

Your parents have a right to occupy the property that is all under the terms of the trust deed.

The high tax rate is stop the trust being misused i.e. tax avoidance.

ognum

Presumably your parents set up the trust as a means to circumnavigate IHT at a future date?

They must be aware of the terms of the trust, who the benificiaries are and how the trust works.

By law all trust must be reviewed yearly, who does this?

roger196

You need to find out who set up the trust, could be grandparents, parents etc. Who are the trustees of the trust. Who are the potential beneficiaries. Is the trust an interest in possession one or a discretionary trust. When was the trust set up?
The parents seem to be confused as to who owns the property, them or the trust?
Trusts are set up for a number of reasons including IHT reduction if the GROB's rules can be overcome. These are protection of assets against divorce or those with uncontrollable spending habits. Remember that care home fees may still be a problem.