Who can wind up a Promissory Trust?

Who can wind up a Promissory Trust?

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Client has a house held in a promissory trust. No longer lives in the property but earns a rental income from it. The trust half of the income is taxed at the "other trust" rate of 45% and this is a problem as the marginal rate of tax for client is 20% and probably always will be. The interests of the beneficiaries (client's children) must be upheld but can the trust be wound up easily?

The trust was set up when they were all the rage but inheritance tax isn't going to be an issue because of the thresholds increasing and property values in my area not doing so. Whilst the trust would protect against any IHT it seems crackers to be taxed at 45% on the income it generates.

Anyone come up against this problem? I'm happy with calculating the tax but not happy that my client is effectively overpaying (client respnsible for trust tax) and has no visible benefit from the trust now it is rented out.

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By KungFuKipper
20th Oct 2014 07:20

Saunders vs Vautier?
All beneficiaries must be over the age if 18 etc....

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By cathygrimmer
20th Oct 2014 09:35

Reclaim tax?

A distribution of the net income to your client as beneficiary would enable him/her to reclaim the tax paid in excess of his/her personal tax liability. Or the income could be distributed to the other beneficiaries (or used for their education/maintenance etc if they are minors) and all or part of the tax reclaimed if they are not liable at 45%.

Winding up the trust might be an option but, as you say, acting in the interests of the beneficiaries is vital and having minor beneficiaries would, I suspect, make it impossible to appoint the trust's half share of the property to your client.

Cathy

[email protected]

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By psvrichard
22nd Oct 2014 10:50

Serves no purpose

Thanks for comments. The beneficiaries are over 18, forgot to include that part. The specific wording of the trust states that the surviving spouse has the right to dispose of the property but that any new investment remains part of the trust. The main issue is that the assets held would be below any IHT threshold but that the half owned by the trust is taxed at 45%. Although the spouse can reclaim this a tax deduction it seems a lot of faffing about. Presumably this is completed in the part of the tax return that asks whether or not any trust income has been received.

 

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