Trust funds and limited business

Daddydoop

I'm the trustee of a Discretionary Trust Fund set up in my wife's name. The money was awarded from the courts for abuse. I am my wife's carer and we live on state benefits. Can the Trust set up a Ltd company for the purpose of increasing her fund value? There are regulations with regards to benefits and Directors but I believe that actively working for the Ltd company would exclude my presumed assets or value in the company thereby allowing benefits to remain in place. Any accrued profits would then belong to the trust. Does this sound right?

Jeremy535897

What are you trying to achieve? You were receiving DLA 10 years ago, which is not means tested.

Daddydoop

We want to build her trust fund to enable us to buy her a house for when we retire and only receive pensions. I understand she should still receive her DLA but we want better housing security for her. Her mental state is affected by being evicted and the like so later life stability would be great.

Jeremy535897

What are you trying to achieve with a company as opposed to leaving the money in the trust?

Daddydoop

I wanted to create a company to generate more money for the trust. The earnings from that company are still taxed but it means we can still claim benefits for the time being until such time that we can get her a home of her own that does not need to be sold because we are over the benefit threshold. Once we have that home then we would not need the support of the benefit system. Currently our rent is met by housing benefits. We want to get out of the benefit trap and live without fear of eviction and not rely on state benefits other than her DLA. The trust is exempt from being included for means testing. We cannot get a mortgage on benefits and if we had a home we could not get benefits without selling it and getting housing benefit. This trust seems the only logical way of getting out of this support system. I'm going to get professional advice but was just asking for direction or confirmation that I was on the right path. Thank you for taking the time to interact with me.

Jeremy535897

Is your idea that the trust forms a company, and you do work for the company that makes a trading profit as a result? Then the company keeps its profit and builds it up? Presumably the idea would then be to pay dividends to the trust so the trust can buy a house? 

Daddydoop

Basically, yes.

Jeremy535897

Most discretionary trusts pay 38.1% tax on dividends over £1,000 (the first £1,000 is taxed at 7.5%), so it would be worthwhile seeking professional advice as you have suggested.

Daddydoop

She does qualify as a vulnerable beneficiary so the tax to the trust would be at 20% as per our government website. The dividends would be Chargeable at dividend rate after £2,000 dividend allowance (7.5%) which I assume is 7.5% for anything over the first £2000. 

Jeremy535897

I wondered whether that might be the case, which was why I qualified the statement with the word "most". I expect you are familiar with this:
https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

I wish you good luck with your proposal and hope that the professional advice supports it.