I have a client who had settled an investment property into a discretionary trust around 10 years ago. The trust receives rental income. Beneficiaries of the trust are two unmarried children and they are high bracket taxpayers. Due to this reason, no income was distributed to children up to date. The trustee pay income tax at 45% on trust income. The current value of the trust property is around 1. 6 Millian. At the time property transferred it was around £900K.
Settler is worried, that he has to pay ten-year anniversary charge sooner and income tax at 45% on trust income. He was thinking either to break up the trust and transfer the property into a limited company. Appreciate, if somebody can advice what is the tax implication of breaking up the tax and then transfer into a limited company.
As an alternative, he was thinking to transfer to beneficiaries. What tax implications to the trustees and beneficiary?
Other than the above options, has trustee got any better options?
Any advice will be greatly appreciated.
Thanks in advance.