Tax obligations for a trustee's spouse

finn99

My wife and I are thinking of making our daughter the sole trustee for our current home. At the moment, we rent it out for periods of the year and I understand that the trust would receive future income if it is set up, and that our daughter would have to declare this for tax purposes (I hope this is correct so far!). If her husband were not a trustee, would he be required to declare 50% of the income, or could it be 100% our daughter's responsiblity? This will have a significant effect on our thinking as he pays tax at a higher rate than she does.

Keep_pedalling

What do you hope to achieve by putting your home in trust? 99% of the time it is a terrible idea. Tax on trust income is payed by the trust not the trustees.

MEM62

finn99 said:

My wife and I are thinking of making our daughter the sole trustee for our current home. 

What is you reason for wanting to put the house in a trust?  

finn99

The reason is unusual. We are moving abroad (to Italy) and tax is already very complicated. If you own a house abroad, the complication gets multiplied 50 times, but we want to keep a base in the UK.

GDB2222

Forget about who the trustees are. The question is who are the intended beneficiaries of this trust? You want the income to go to your daughter, but you also want to maintain a base in the uk. So, how would that work in practice? Would you remain as beneficiaries? If you do, how would the Italian tax system view that?

Surely, you need advice that is well beyond what this forum can provide?

poseidon1

finn99 said:

The reason is unusual. We are moving abroad (to Italy) and tax is already very complicated. If you own a house abroad, the complication gets multiplied 50 times, but we want to keep a base in the UK.

Sounds to me you have made the classic error  ( many Brits make ) of deciding to move to a foreign country having made little or no effort to take specialist advice from a tax professional concerning  your likely tax  obligations therein and how these can be mitigated by appropriate pre planning.

Your enquiry suggests you maybe trying to side step Italy's wealth tax that extends to overseas property owned by Italian tax resident individuals (IVIE) .  Accordingly  you may already , or soon plan to spend in excess of 183 days each year in the country thereby triggering full blown Italian tax compliance obligations. You also state you receive rental income from the UK property so Italian income tax thereon maybe in point even if you are properly declaring the income for UK tax purposes.

As GDB2222 rightly points out your question is way beyond the remit of a forum like this, even if there were forum contributors qualified to comment.

All I will say is your vague idea of some form of ' have your cake and eat it'  trust arrangement for the house  to act as a shield against Italian world wide wealth/income taxes, is ill considered especially since you wish to reserve the right to continue to use the property at your convenience. So essentially a trust for your ultimate benefit?

I appreciate with  Italian IVIE now at 1.06% of overseas property , the example of a £500,000 UK house would attract annual tax in excess of £5,000 on that asset alone. However, it is these type of cross border tax differences which make it imperative to take appropriate advice before diving blindly into foreign tax regimes.

sheramber

What do you mean by having a base in UK?

If the house is rented out you will not be able to stay in it. 

finn99

As a final point, We are taking professional advice and have not moved yet. We will not leave for another two years and have no intention of jumping anywhere blindly. At the moment we are weighing up options and preparing the groundwork. Thank you to all who commented.

GDB2222

finn99 said:

As a final point, We are taking professional advice and have not moved yet. We will not leave for another two years and have no intention of jumping anywhere blindly. At the moment we are weighing up options and preparing the groundwork. Thank you to all who commented.

I’m glad to hear that this is all early stage thinking about what you could do. 

One option is simply to give your home to your daughter, without any restrictions or trust, but in the hope that she will give it back to you if you need it. At least, that’s clean and simple,  although it has lots of potential drawbacks. For example, there’s CGT to consider. 

poseidon1

GDB2222 said:

finn99 said:

As a final point, We are taking professional advice and have not moved yet. We will not leave for another two years and have no intention of jumping anywhere blindly. At the moment we are weighing up options and preparing the groundwork. Thank you to all who commented.

I’m glad to hear that this is all early stage thinking about what you could do. 

One option is simply to give your home to your daughter, without any restrictions or trust, but in the hope that she will give it back to you if you need it. At least, that’s clean and simple,  although it has lots of potential drawbacks. For example, there’s CGT to consider. 

I concur with GDB2222, there can be no replacement for bespoke targeted advice in a situation like this.
The complexities of cross border taxation and interplay between tax regimes is a matter for appropriately qualified tax advisers and not a random group of anonymous strangers on the internet.

My experience is most Brits do not have much comprehension of the UK tax landscape they were born into, let alone compounding this shortcoming with trying to get to grips with foreign jurisdictions.

finn99

My aim is also to at least grasp some of the concepts and complexities in this country in order to be prepared for meetings with Italian experts. This query was about me putting questions to myself about a possible course of action. The wisdom of that course will late be discussed with people who knare experts in the field..