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How many trusts with two settlors?

How many trusts with two settlors?

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My clients husband and wife own a buy to let property as tenants in common valued at £300,000.  They each wish to gift their 50% share to a discretionary trust.

Am I right in thinking that two separate trusts should be set up to take advantage of the 2 lots of standard rate band and 2 lots of CGT annual exemptions rather than one trust with 2 settlors for self-assessment purposes?

Thanks

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By Tax Dragon
29th Apr 2019 22:09

You might be. You might not be. My crystal ball is all worn out from second guessing Brexit outcomes.

I do know that two trusts might cost more to run than one trust. But less than twice as much.

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By rhino83
30th Apr 2019 08:12

With two trusts you get an extra standard rate band of £1000, so potential current tax saving of £250 per annum, and an extra annual exemption, so at current rates a saving of £1,680 when the property is sold.

Annual accountancy fees will probably wipe out the savings not to mention the fees for setting up the deeds.

There are of course other benefits of setting up separate trusts and not just tax related. It will depends on numerous variables that only you and your clients will know, such as potential beneficiaries, future IHT planning etc.

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Replying to rhino83:
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By Tax Dragon
30th Apr 2019 09:11

rhino83 wrote:

With two trusts you get…

rhino83 wrote:

…an extra standard rate band of £1000, so potential current tax saving of £250 per annum

Yeah but no but… distributions?

rhino83 wrote:

…an extra annual exemption, so at current rates a saving of £1,680 when the property is sold.

Making relevant assumptions, I agree.

rhino83 wrote:

…future IHT planning.

Is that before or after considering s44(2)?

OP, I realise it might not sound like it, but I agree with rhino83. It may well be desirable to have two trusts; just not for the reasons you give.

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Replying to Tax Dragon:
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By rhino83
30th Apr 2019 09:44

I agree with what you're saying and in most circumstances I would recommend two trusts, but not necessarily for the tax advantages. I was just pointing out to op that there is much more to consider.

Although could you clarify what you mean please by "Yeah but no but… distributions?".

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Replying to rhino83:
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By Tax Dragon
30th Apr 2019 09:50

(With one (modestly-valued) property, one trust might be better - depends on the plans.)

What did I mean? That tax paid by DTs on income becomes (speaking colloquially) tax credits on income paid out from DTs. Your asserted £250 annual saving may be a little, erm, disingenuous.

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Replying to Tax Dragon:
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By rhino83
30th Apr 2019 10:10

Ok, yes I see what you meant now.

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By Vile Nortin Naipaan
30th Apr 2019 12:08

WTAF? What does "set up two trusts" mean? If there are two settlors there are two settlements, whether theyr'e governed by one trust deed or two.

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By mustardtree6
30th Apr 2019 16:26

I have seen many trusts that have two settlors and only complete one set of SA900 (hence one SRB and one CGT AEA) but for IHT purposes are two trusts, so two sets of IHT100 forms. Besides the extra administrative costs, what are the advantages of two separate trusts?

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Replying to mustardtree6:
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By Tax Dragon
30th Apr 2019 17:32

I agree. Two settlements does not mean two trusts.

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By Montrose
30th Apr 2019 20:02

There is no reason why there need to be two separate trusts. Practical answer is for say H to settle his share on Trustees[perhaps H & W], with trust deed setting out beneficiaries and trust administration provisions. W then settles her share on the same trustees to hold under the same trusts. So far as HMRC are concerned this is two trusts[for CGT and IHT]. There have two be two SA returns.

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Replying to Montrose:
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By Tax Dragon
30th Apr 2019 21:23

You and Vile don't often agree, so I take notice when the two of you do... and I don't.

What's the basis for what you both say? (For IHT it's s44(2) - I've noted that already.)

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Replying to Tax Dragon:
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By Vile Nortin Naipaan
01st May 2019 11:39

Tax Dragon wrote:

What's the basis for what you both say?

Trust law! A trust is not an entity; it is a relationship between a settlor, trustees, and the settlor's beneficiaries in relation to the settled property.

Also, you will notice that tax law applies to settlements, rather than trusts, in any event.

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Replying to Vile Nortin Naipaan:
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By Tax Dragon
01st May 2019 12:21

Blimey. That sounds like para 1 page 1 of Basic Trust Taxation. (In fact I see it is! It's TSEM1004, so it is!)

I guess I have some bedtime reading to do... I probably need to sleep on this one.

Thank you.

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