Family trusts need careful consideration

of trusts under the umbrella of the Grosvenor Estate. The estate’s trustees control the property business, including parts of Mayfair and Belgravia, via Grosvenor Group Limited; Wheatsheaf, a food and energy business, which runs the farms; a fine art collection and a series of cash investments; rural land holdings in Lancashire, Sutherland and Wales; and the family seat at Eaton Hall near Chester.

The financial tentacles stretch around the world with assets in the Americas, Asia Pacific and Europe.

Death duties are charged at 40 per cent on everything above the tax-free allowance of £325,000 per person or £650,000 for married couples and civil partnerships, so in theory the Grosvenors could face a £3 billion plus tax charge.

But, taking advantage of business property relief, further reliefs applying to farms and woodlands, plus the family trusts will likely mean little if any IHT is ultimately due.

For ordinary mortals, setting up a trust can be useful if, for example, you want assets to eventually pass to your children while ensuring your spouse can benefit from them for the rest of his or her life.

Trustees have a legal duty to act fairly, balancing the interests of different beneficiaries. You can be a trustee of the trust yourself, as can any of the beneficiaries, though this may risk a conflict of interest. There are many types of trust. A bare trust is a simple form where the beneficiary is absolutely entitled to the trust property provided they are 18 or over and mentally capable. A discretionary trust is one where the trustees have more discretion over how they distribute income and capital, perhaps in meeting school fees for example.

For discretionary trusts, anything in excess of £1,000 is taxed at 38.1 per cent for dividends and 45 per cent for other income.

If you put assets into a bare trust for someone who is not your child, the income and capital gains are taxed as the beneficiary’s income and gains.

This can be advantageous as a child’s income may well be less than the annual personal allowance, and so tax-free. Similarly, any capital gains realised in a particular year might well be less than the annual capital gains tax allowance, and so also tax-free.

If assets, such as savings, are put into a bare trust by a parent, income over £100 is taxed as the parent’s income, not the child’s, until the child reaches 18 or marries, whichever happens earlier.

If you put assets into a bare trust, and survive for at least seven years, there will be no IHT charge.

However, in most circumstances, every ten years, HM Revenue & Customs is entitled to claim six per cent of the value of the trust fund.

Most trusts are subject to capital gains tax. There is an annual exemption which is normally half the level of the exemption for individuals.

As I said, it is complex so take advice. Trevor Law is managing director of Merito Financial Services, chartered financial planners,

based in Solihull. Email:tilaw@meritofs.com