Tax on Bonds?

Dunvegan

Hi,

My wife's Father died last year and in 2012 they set up a "Family Protection Trust" to protect his estate in the event of him having to go into care - he was 93 at the time.

The money in this trust was put into Bonds with Aegon; the old man has subsequently died and the trust is to be split 4 ways - around £10,000 each.

My wife doesn't work and is a non-tax payer, but the Lawyers are telling her that she has to pay 45% tax on this money! - can anyone confirm that this is correct? - I'd love to find info on it but can see nothing.

Any help gratefully accepted, thanks.

jaybeetoo

Not sure if this is the same type of trust https://www.moneywise.co.uk/work-family/pay-less-tax/will-my-brother-and-i-have-to-pay-tax-the-trust-my-mother-set

Reed_Richards

Your wife has no tax to pay on her inheritance but the Trust may be liable for tax before it can be cashed-in and distributed. Under certain circumstances trust are liable to pay income tax at 45% https://www.gov.uk/trusts-taxes/trusts-and-income-tax . How much money was put into the trust when it was created in 2012?

Malthusian

Dunvegan wrote: »

Hi,

My wife's Father died last year and in 2012 they set up a "Family Protection Trust" to protect his estate in the event of him having to go into care - he was 93 at the time.

It probably wouldn't have worked due to deliberate deprivation rules. But that's water under the bridge now.

My wife doesn't work and is a non-tax payer, but the Lawyers are telling her that she has to pay 45% tax on this money! - can anyone confirm that this is correct? - I'd love to find info on it but can see nothing.

Can the trustees not assign the bonds (or segments thereof) to your wife so they can be encashed in her name?

Are these the same lawyers who set the trust up in the first place? We have limited information but their grasp of how trusts and insurance bonds work seems shaky to say the least.

menziesthefish

Can the trustees not assign the bonds (or segments thereof) to your wife so they can be encashed in her name?

This would only be possible if the Bond was set up with other lives assured. It doesn't sound like that's the case as the Father's death appears to have triggered a chargeable event - hence the tax charge.

My wife doesn't work and is a non-tax payer, but the Lawyers are telling her that she has to pay 45% tax on this money! - can anyone confirm that this is correct?

Any tax due on a bond held within a trust is ordinarily the liability of the settlor (in this case the Father). Given he is dead, the liability passes to the trustees. They can of course use Trust assets to cover the tax, but the rate of 45% is the standard tax rate for a Trust and it would need to be paid before any of the money can be distributed to beneficiaries.

There should be a small tax allowance available to help minimise the tax - from memory the first £1,000 of chargeable gain is taxed at 20%, not 45%.

Malthusian

menziesthefish wrote: »

This would only be possible if the Bond was set up with other lives assured. It doesn't sound like that's the case as the Father's death appears to have triggered a chargeable event - hence the tax charge.

An excellent point. Which, if that's the case, immediately gives rise to the question of why the bond wasn't set up with other lives assured.