IHT Reference and UTR questions

mfn123

We have a small Discretionary Trust that is due to hit its next 10-year anniversary in a few months, and we are planning to end it as soon as we can (maybe before the anniversary, maybe after - there are some external dependencies).

The value of the trust assets has grown to the point where a small amount of IHT will be due at the anniversary or on moving the assets out, but there has never been any income tax or CGT liability, and the trust is registered as non-taxable (i.e. it has a URN rather than a UTR).

My questions ...

(1) Does the registration need upgrading to a full UTR before we can submit the IHT100d form for the anniversary, and/or the IHT100c form for moving the assets out?

(2) Does each IHT100 submission need a separate IHT reference, or can they share a single reference (in the same way self-assessments reuse the same UTR each year)

(3) If a particular IHT100 submission does not incur any tax, does it need an IHT reference at all?

Please can anyone shed light on these mysteries?

Thanks

poseidon1

mfn123 said:

We have a small Discretionary Trust that is due to hit its next 10-year anniversary in a few months, and we are planning to end it as soon as we can (maybe before the anniversary, maybe after - there are some external dependencies).

The value of the trust assets has grown to the point where a small amount of IHT will be due at the anniversary or on moving the assets out, but there has never been any income tax or CGT liability, and the trust is registered as non-taxable (i.e. it has a URN rather than a UTR).

My questions ...

(1) Does the registration need upgrading to a full UTR before we can submit the IHT100d form for the anniversary, and/or the IHT100c form for moving the assets out?

(2) Does each IHT100 submission need a separate IHT reference, or can they share a single reference (in the same way self-assessments reuse the same UTR each year)

(3) If a particular IHT100 submission does not incur any tax, does it need an IHT reference at all?

Please can anyone shed light on these mysteries?

Thanks

Responses to questions  as follows:

1) No UTR ( for income tax purposes)  required at this stage. The 10 year charge is IHT only and presumably the trust already has an IHT reference number from inception? In any event, IHT is payable within 6 months of the anniversary. 

2) No, the trust has a single IHT reference throughout its entire history, which should be the intial reference it was given at creation ( assuming an IHT 100 was submitted back in 1996).

3) Yes, if the trust value exceeds 80% of the NRB at the 20 year point, and for whatever reason no IHT reference had been previouly applied to it when originally created (as per 2 ) above. From a previous post appears you narrowerly missed having to submit a return on the 2015 anniversary having at that point ascertained the trust fund was valued at less than 80% of the prevailing Nil Rate Band. At that point you effectively claimed 'excepted settlement ' status, but without having made any formal declarations to HMRC of the fact. Be prepared for HMRC to possibly query the 2015 position when you submit the 2025 return.

As for planning to wind up the trust,  I would suggest doing so within 3 months after the 10 year Anniversary. This is because there is a concession that no IHT can be charged on exits of trust capital within that window, regardless as to how much IHT may have been paid at the 10 year point. Any distribution or winding up after 3 months has passed attracts an proportionate IHT exit charge based on what was payable at the last anniversary.

Income tax planning - you say the trust is in an investment bond which I assume has accumulated untouched  ( with zero withdrawals) throughout its exsistence? If the bond is encashed whilst still in the trust, income tax may arise on  your mother  based on her income tax status but subject to the operation of top slicing relief on her behalf.  Its her personal tax liabilty but she has a statutory right to recover such tax charge from the trust fund.

However if she has no need for the funds because of her own IHT exposure ( no transferable NRB from husband), best approach would be to assign ownership of the bonds out of the trust to other beneficiaries who can then use their own individual tax status to mitigate/ avoid income tax on future encashments. Trustees should just remember to have suffient cash retained in their own hands to meet any 10 year IHT charge due within the following 6 months.

Ordinarily I would end at this point and suggest you get professional assistance with these matters (especially for administration in and around the 10 year anniversary). However, you could check with the bond life company if they have legal templates  covering appointments of trust capital out of the trust to beneficiaries togather with assignments of the underlying bonds. If no standard documents available  you may need to engage a STEP qualified solicitor to draft accordingly.

mfn123

Thanks @poseidon1 - all good info and advice. Much appreciated. Some comments on particular points

(1) No UTR. Yes that makes sense - I assume we would only need UTR if making an SA900 submission,

(2) We don't currently have an IHT ref, so clearly we need to get one for all future IHT100 submission(s)

(3) As you guessed, this is indeed the trust that was below 80% NRB in 2015 but has now grown. We only realised the need for anniversary reports back during Covid, so you are right to warn that HMRC may want more details about 2015. Fortunately the trust assets are very simple, so providing 2015 valuation should be OK.

(4) Thanks for the good advice to end the trust within 3 months after the anniversary to avoid further IHT. Actually we had already found that from the IHTM42115 proportionate charge calculation. We even found we might avoid IHT altogether if we ended the trust before the 2025 anniversary (because the calculation would then be based on 2015 value, which was below NRB). However, that might be pushing our luck given the lack of 2015 report!

(5) As for reassigning the bonds to mitigate income tax, that is no longer an option for us because the reason for ending the trust is that the settlor (MiL) died recently, so the bonds have ended because of that, and the chargeable gains will be against her final year self-assessment (rather than her estate, the trust or any trust beneficiaries). As anticipated, top-slicing relief means she will pay little or no additional tax because of the gains. In fact the only effect is that she lost her Personal Allowance (because unsliced income is well above 100k), so her other income this tax year gets taxed at basic rate - a small price to pay.

We have a solicitor to assist with the legal side of winding up the trust, but I was intrigued by your comment about professional help for the IHT100d submission. One of the trustees is an accountant but IHT is not his speciality.  My previous posting about this led me to believe IHT100d would not be too bad (because the assets are so simple), but are there particular complexities to be aware of?

Thanks again for your time

poseidon1

mfn123 said:

Thanks @poseidon1 - all good info and advice. Much appreciated. Some comments on particular points

(1) No UTR. Yes that makes sense - I assume we would only need UTR if making an SA900 submission,

(2) We don't currently have an IHT ref, so clearly we need to get one for all future IHT100 submission(s)

(3) As you guessed, this is indeed the trust that was below 80% NRB in 2015 but has now grown. We only realised the need for anniversary reports back during Covid, so you are right to warn that HMRC may want more details about 2015. Fortunately the trust assets are very simple, so providing 2015 valuation should be OK.

(4) Thanks for the good advice to end the trust within 3 months after the anniversary to avoid further IHT. Actually we had already found that from the IHTM42115 proportionate charge calculation. We even found we might avoid IHT altogether if we ended the trust before the 2025 anniversary (because the calculation would then be based on 2015 value, which was below NRB). However, that might be pushing our luck given the lack of 2015 report!

(5) As for reassigning the bonds to mitigate income tax, that is no longer an option for us because the reason for ending the trust is that the settlor (MiL) died recently, so the bonds have ended because of that, and the chargeable gains will be against her final year self-assessment (rather than her estate, the trust or any trust beneficiaries). As anticipated, top-slicing relief means she will pay little or no additional tax because of the gains. In fact the only effect is that she lost her Personal Allowance (because unsliced income is well above 100k), so her other income this tax year gets taxed at basic rate - a small price to pay.

We have a solicitor to assist with the legal side of winding up the trust, but I was intrigued by your comment about professional help for the IHT100d submission. One of the trustees is an accountant but IHT is not his speciality.  My previous posting about this led me to believe IHT100d would not be too bad (because the assets are so simple), but are there particular complexities to be aware of?

Thanks again for your time

If death of the settlor has resulted in the  automatic termination of the bond, then you should have a straightforward cash amount to report  on page 3 of the 100d at the 10 year anniversary, assuming the trustees do not reinvest in something else. Can't see why there should be any complexities arising in completing the 100d in these circumstances.

Depending on how long after death the insurance company takes to pay the bond proceeds, there maybe interest paid thereon, and if monies subsequently placed on deposit pending distribution to beneficiaries, additional taxable interest will arise. As a result a trust SA 900 may then be required to report income tax payable at 45%.  Since you have professional trustees, the accountant's charge for submitting an SA900 ( if you get him to do it) should be an allowable deduction against the interest for tax purposes.

Finally the trust appears to have served its purpose from the point of view of your mother's estate, you might wish to consider if it could still be of use for your estate planning, and/or something similar set up by yourself in future.

You have been in a good position to see how these entities can be useful estate planning tools if set up and run properly and the investment bond has been a particularly useful core trust investment (despite the conceptual complexities) in this circumstance.