Discretionary Trust IHT

poseidon1

Sterlingtimes said:

poseidon1 said:

Sterlingtimes said:

poseidon1 said: I am disappointed that having done so, your chosen professionals appear to be proceeding at less than snails pace. Makes me wonder about the calibre of some of the current professionals operating in the sector I retired from.

I appreciate your kindness. This is not the accountant's fault since I just appointed him. I expected the solicitor to take the lead and appoint the accountant. I will now write to the accountant explicitly about my failure to report the IHT. It seems that the Trust will incur a substantial penalty (£3000).

When I was appointed trustee in 2018, I failed to appreciate that IHT would fall due under (what was) a New Zealand Trust. But ignorance of the law is no excuse.

My near-term plan must be to address the tax situation. When my very ill 96-year-old mother dies, then I can move on to the next step and seek to get the Trust dissolved. 

Again, you have given me excellent guidance, for which I am thankful.

Can I offer a bit of reassurance on the HMRC penalties for late submission of the IHT 100 form. At the moment you are on the hook for a basic £200 for a return more than 1 year in arrears.

The answer on the IHT is promising:

With regard to the 10 year charge there is no requirement to file a return if the value of the trust is less than 80% of the nil rate band (NRB) which is currently £325,000. So based on the values provided there would be no requirement assuming a full NRB was available to the trust. If the settlor made gifts in the 7 years prior to establishing the trust then these would need to be considered before I could provide a definitive answer. I would also need to consider if there are any special rules applying to a trust created outside the UK.

I must confess to having entirely overlooked the 80% de minimus limit with regard to any need to submit the IHT 100 over the 10 year reporting cycle. No doubt, your accountant noted this when  you requested  he submit the form?

As you say there is the potential matter of any cumulative gifts from the settlor 7 years prior to making the settlement, although I have a vague recollection that this should not apply to non UK resident/ non dom settlors, who were themselves entirely outside the scope of the regime at the time of making the settlement. Regrettably, I have mislaid my copy of  Clarke 'Taxation of Offshore Trusts ' to check this.

 However what gives me a little pause for thought in your case is the trust monies were wholly invested in a UK situs asset ( the flat). Ordinarily  ( in the past) planning in this area would involve  a non dom, non resident settlor interposing an  offshore company to act as the property owner, with that company then wholly owned by the trust. This would have made the trust property wholly excluded  so effectively 'invisible' for IHT purposes for so long as trusteeship also remained offshore.  However given the very modest value of the property from outset, such an arrangement would have been overkill here.

In any event, very reassuring that your accountant appears to be alive to these issues, certainly as far as trust tax compliance is concerned, those obligations now seem to be more than ably covered by that professional.

Hopefully, you a feeling a little less stressed by your trusteeship, at least as far as tax is concerned?

Sterlingtimes

poseidon1 said:

I must confess to having entirely overlooked the 80% de minimus limit with regard to any need to submit the IHT 100 over the 10 year reporting cycle. No doubt, your accountant noted this when  you requested  he submit the form?

As you say there is the potential matter of any cumulative gifts from the settlor 7 years prior to making the settlement, although I have a vague recollection that this should not apply to non UK resident/ non dom settlors, who were themselves entirely outside the scope of the regime at the time of making the settlement. Regrettably, I have mislaid my copy of  Clarke 'Taxation of Offshore Trusts ' to check this.

 However what gives me a little pause for thought in your case is the trust monies were wholly invested in a UK situs asset ( the flat). Ordinarily  ( in the past) planning in this area would involve  a non dom, non resident settlor interposing an  offshore company to act as the property owner, with that company then wholly owned by the trust. This would have made the trust property wholly excluded  so effectively 'invisible' for IHT purposes for so long as trusteeship also remained offshore.  However given the very modest value of the property from outset, such an arrangement would have been overkill here.

Presumably, the HMRC drew upon the Pareto principle in its rule-writing. The taxation rules for trusts appear to be difficult to determine by a simple Google search, but this new information simplifies matters. I no longer seem to be a criminal who can be fined for failing to submit the zero IHT return.

There were no gifts in the 7 years before the settlement, and New Zealand is heaven in that there are [ordinarily] no death-related taxes of any kind. The trust sailed through New Zealand probate.

I think that I can relax now until my poor old mother dies. Then, I can revert to legal counsel and consider winding up the trust.

You have guided me in engaging the correct professionals and provided the language to help me discuss trust with them. I am so grateful.