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Notes by the top 1% of students
This is a sample of our (approximately) 7 page long Life Interest Trusts notes, which we sell as part of the Private Client Notes collection, a 80-90% package written at Multiple Institutions in 2015 that contains (approximately) 159 page of notes across 32 different document.
The following is a plain text extract of the PDF sample above, taken from our Private Client Notes. This text version has had its formatting removed so pay attention to its contents alone rather than its presentation. The version you download will have its original formatting intact and so will be much prettier to look at.
Life interest trusts 1) Life interest trusts created Pre 22nd March 2006 - created during lifetime OR by will
Creation of trust
a) Life interest trust created during lifetime
Overall effect
Life tenant is treated as the owner of the trust capital for IHT purposes even though they are only entitled to income - s.49(1) IHTA 1984
Inheritance tax
a) PET by settlor
Normal lifetime transfer PET rules apply
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No IHT to pay on transfer
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If dies within 7 years - 40%
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Possible taper relief
As last date for this trust was 21st March 2006, last date on which the PETs can fail is 20th March 2013 b) Spousal exemption applies to this transfer if spouse is life tenant of trust
Capital gains tax
a) Is an actual chargeable disposal unless is disposing of:
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Cash; or
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Treasury shares / govt. bonds
Normal chargeable disposal rules apply
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Calculate gain
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Minus AE (PS11,000)
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Reduced gain x 0.18 / 0.28
b) Holdover relief:
s.165 a? Available for business assets
s.260 a? Not available as is a PET / No corresponding IHT Event
b) Life interest trust created by will
Income tax
No impact on income tax
Overall effect
Life tenant is treated as the owner of the trust capital even though they are only entitled to income - s.49(1) IHTA 1984
Inheritance tax
a) Part of testator's death estate
b) Spousal exemption applies to this transfer if spouse is life tenant of trust
Capital gains tax
No CGT on death
Income tax
No impact on income tax
Normal death estate rules apply
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Cumulative total a? NRB
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Possible 2 x NRB as TNRB is available on death estate
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Death time exemptions
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Tax at 40%
During the lifetime of the trust
Life interest created during lifetime OR by will
Inheritance tax
No IHT payable as:
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No periodic charges
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No exit charges
Capital gains tax
a) Property remains in the trust
No CGT payable by the life tenant as:
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Life tenant not deemed to own property for CGT purposes
b) Property is sold by trustee
Trustee's actual chargeable disposal rules apply
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Calculate gain
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Minus trustee's AE (PS5,500)
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Reduced gain x 0.28
a) Trustees - must pay income tax on any trust income
a) Non-Dividend income - 20% tax
Income tax
b) Dividend income - 10% tax
b) Life tenants - Must pay personal income tax on trust income once it has been paid out relative to their own income tax position
a) If have overpaid a? Will claim a rebate
b) If have underpaid a? Will pay more
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