Investing money in Trust

Wilma98

My father passed away last August and left his house in Trust to myself and my brother, but has given his partner the benefit of Life Tenancy. She wishes to sell the house and buy somewhere else (which she has the right to do) and any residual money from the sale has to go into Trust for myself and my brother but has to provide her with an income from any interest accrued. I'm struggling to find banks that will provide this sort of account. A solicitor recommended we take financial advice so we can grow our Capital while paying an income to Dad's partner. Unfortunately I'm not in a position to afford financial advice. I'm also concerned investing could be risky and we have an obligation to pay an income from the interest. Any suggestions or recommendations would be much appreciated. Thanks.

xylophone

Try Skipton Building Society?

Albermarle

I'm also concerned investing could be risky

Investing is risky by its very nature. However over the long term and sticking to mainstream diversified funds, history shows a better return than from cash savings.
Also in your case you could look at investments that produce a regular income.

poseidon1

Wilma98 said:

My father passed away last August and left his house in Trust to myself and my brother, but has given his partner the benefit of Life Tenancy. She wishes to sell the house and buy somewhere else (which she has the right to do) and any residual money from the sale has to go into Trust for myself and my brother but has to provide her with an income from any interest accrued. I'm struggling to find banks that will provide this sort of account. A solicitor recommended we take financial advice so we can grow our Capital while paying an income to Dad's partner. Unfortunately I'm not in a position to afford financial advice. I'm also concerned investing could be risky and we have an obligation to pay an income from the interest. Any suggestions or recommendations would be much appreciated. Thanks.

Depends how much surplus cash is involved  as to whether a mere interest bearing saving account is  suitable as a medium to long term income generating vehicle for the life tenant. Certainly this is unlikely to generate potential for a rising income for the life tenant. You might wish to acquaint yourself with trustees powers and duties when it comes to investment matters generally- see link below - 

https://www.farrer.co.uk/news-and-insights/trustees-duties-and-powers-when-making-investment-decisions/

Returning to interest bearing accounts,  bear in mind the few institutions that do offer saving accounts for trustees, don't tend to offer brilliant rates  which will no doubt fall with future reductions to the B of E base rate. However if you insist on going down that road the discussion thread below between trust administration professionals might assist- 

https://trustsdiscussionforum.co.uk/t/uk-banks-who-will-open-trust-accounts/20288

As you will see Cater Allen gets a favourable mention  there and often mention on mse forums, but requires an intermediary introducer - see what Cater Allen offers below - 

https://www.caterallen.co.uk/accounts/specialist-banking/solutions-for-trusts


Finally also bear in mind trust administration gets more complicated when income is generated so note the following:

1) The trust has to be registered on the HMRC trust register within 2 years of death ( strict requirement with potential penalties for non compliance)

2) Once income is being generated the trustees must then register for self assessment tax purposes and submit form SA900 annually.

3) Strict position is trustees are liable to pay tax on gross interest received, and pay to the life tenant the net amount after tax accompanied with a trustee generated tax deduction certificate R 185. However this requirement can be waived if interest is mandated direct to the life tenant by the bank concerned.

As to the cost of professional advice for trust investing, this is a valid charge on the trust capital not a personal charge on the trustee.

TheGreenFrog

I have very similar situation with a relative and posted a question yesterday without having read this thread. 

However the advice received by the trustees in my relative's case was that where there is a life tenant with right to income, that income is declared by the life tenant and not by the trustees.  If that is correct then the easiest thing from tax perspective is probably to stick the cash in a bank account and ensure all the interest is paid to the life tenant and declared by the life tenant to HMRC.  That is what the trustees did in my relative's case.  If the amount in question is very large then maybe something more complicated is warranted but you would I think need to pay advisers.

I also asked a question a while ago on the tax forum about the tax treatment of the income as I was helping my relative with her tax return and wanted to double check what the trustees were saying to the relative.  

https://forums.moneysavingexpert.com/discussion/6468915/self-assessment-how-to-declare-income-from-a-life-interest#latest

poseidon1

TheGreenFrog said:

I have very similar situation with a relative and posted a question yesterday without having read this thread. 

However the advice received by the trustees in my relative's case was that where there is a life tenant with right to income, that income is declared by the life tenant and not by the trustees.  If that is correct then the easiest thing from tax perspective is probably to stick the cash in a bank account and ensure all the interest is paid to the life tenant and declared by the life tenant to HMRC.  That is what the trustees did in my relative's case.  If the amount in question is very large then maybe something more complicated is warranted but you would I think need to pay advisers.

I also asked a question a while ago on the tax forum about the tax treatment of the income as I was helping my relative with her tax return and wanted to double check what the trustees were saying to the relative.  

https://forums.moneysavingexpert.com/discussion/6468915/self-assessment-how-to-declare-income-from-a-life-interest#latest

Maybe you can advise the OP of this thread which bank has provided services in your relative's case.

 Their primary problem at this point is finding a bank prepared to set up a trustee account in the first place.

TheGreenFrog

It was Nationwide, but the issue is that they now seem to no longer want to recognise them (trust accounts) so I think the trustees in my case will just get the interest paid to them and pass it on and Nwide will just treat it as a normal joint account.  Should not change the tax analysis, but makes things more complicated.

Wilma98

Thank you all for your comments. My understanding is I will not be responsible for filling out a tax return as a Trustee, but the Life Tenant (who will also be a Trustee) has to fill out a tax return on the income she receives from the interest. My brother and I will not receive any money from the trust until the Life Tenant dies. I'm not sure how it works if we grow the Capital but don't have access to it? Surely we won't need to fill out tax returns as we won't be in receipt of any actual money? I had looked at NS&I for a trust holding, although this will not grow our capital, and found information about application but it seemed only for professional use on behalf of the client. I think I will need to seek professional advice using trust funds.

poseidon1

TheGreenFrog said:

It was Nationwide, but the issue is that they now seem to no longer want to recognise them (trust accounts) so I think the trustees in my case will just get the interest paid to them and pass it on and Nwide will just treat it as a normal joint account.  Should not change the tax analysis, but makes things more complicated.

Except it does change the tax compliance requirements. Life interest trust income being taxed directly on the beneficiary is conditional on it being paid direct by the bank to the beneficiary.  

Where that ceases to happen and the interest is routed via the trustees, they assume the primary obligation to account for and pay basic rate tax on the interest at trust level. 

Generally, in these situations life interest trustees should acquaint themselves with  trust self assessment reporting requirements as set out in note 3 on page 2 of the SA900 - see link below

https://assets.publishing.service.gov.uk/media/66029787a6c0f7580fef91d2/sa900man-2024.pdf

In your relative's case Nationwide by now refusing to support the concept of a trustee account (and treat it as their personal account), will complicate matters in future by  sending to HMRC certificates of interest paid, which infers the interest is the trustees'  personal interest for tax purposes and not the Life tenants, with obvious potential for double tax on the same income where the same income is then reported by the life tenant.

The trustees in that situation might wish to take preemptive action and contact HMRC ( trust division), to explore the implications of Nationwide's decision to cease recognising the trustee status of the account. 

Has regards the original OP's current predicament, they can as a result of your revelation  strike off Nationwide as an option for a new trustee account.

poseidon1

Wilma98 said:

Thank you all for your comments. My understanding is I will not be responsible for filling out a tax return as a Trustee, but the Life Tenant (who will also be a Trustee) has to fill out a tax return on the income she receives from the interest. My brother and I will not receive any money from the trust until the Life Tenant dies. I'm not sure how it works if we grow the Capital but don't have access to it? Surely we won't need to fill out tax returns as we won't be in receipt of any actual money? I had looked at NS&I for a trust holding, although this will not grow our capital, and found information about application but it seemed only for professional use on behalf of the client. I think I will need to seek professional advice using trust funds.

As I said all depends on the amount of cash freed up for investment.

Trustees may find difficulty sourcing advice for a low 5 figure amount. £100k plus would open up more options

If investing for capital growth as well as income, the trust is liable for CGT on any investments sold for a profit during the life tenant's life time. However that would give you and your brother a better chance for the trust capital to keep pace with inflation if investing with a 15 to 20 year time span in mind.

You would hope for the downsized property to hopefully appreciate in value in future, cash in the bank definitely will not.

.

Eyeful

Anything to do with money, has some form of risk attached. All that changes is the size and type of risk.

Example:
With a low risk savings account, protected up to £85k by the FSCS, the risk is inflation, which sometimes can be high (see below)
This is where over time, those savings get you less & less because prices & services keep going up.
RPI 1948 to 2025:  https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23

In the 1960's a skilled working man earned £1000 a year. Now the average is about £37000 a year.