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Moneys worth

A trust client holds an investment bond.  The beneficiary of this trust is not yet at vesting age, but the trustees wish to advance the investment bond to him to encash to buy a house, backed by a standard security to the trust for the value of the bond.  is this considered to be an assignment for money or moneys worth, with the potential liablity on encashment falling on the trustees?

 

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07th Mar 2019 14:01

Richard Brunton wrote:

The beneficiary of this trust is not yet at vesting age, but the trustees wish to advance the investment bond to him to encash ....

I have no knowledge of trusts so this may be a daft question but have the trustees taken legal advice?

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07th Mar 2019 14:13

Tax position without the trust loan would be as follows:

1. Investment bond units are assigned to the beneficiary. This would be a capital distribution by the trust, with its IHT consequences.
2. Beneficiary cashes in the bond: income tax on the bond gain for the beneficiary, with top slicing relief.
3. Trusts do not benefit from top slicing relief, hence the above steps being done in this way.

The above is the straight forward position. What you are seeking is for step 1 to be done as a loan rather than a distribution. I do not know the answer to your question, but would be interested if you find out.

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to Jane Evans
07th Mar 2019 15:57

Hi Jane

I am led to believe that the granting of the standard security means that the assignation of the policy is being done for moneys worth which will mean that the trust is liable to the tax on the encashment of the policy , which mean there will be a substantial trust rate charge.

The thinking now is to loan the policy to him with a standard security. this advance will not be for moneys worth. If he chooses to encash the policy the chargeable event will arise on him.

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to Richard Brunton
07th Mar 2019 16:56

Richard Brunton wrote:

If he chooses to encash the policy the chargeable event will arise on him.

I question this. It's not his asset to encash, in this scenario.

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