Can a 12 year old own a house, in Trust to keep tax bill?
Discussion
The big question is, what opportunities exist for paying little or no tax on the rental?
The situation is a non married partner dies leaving a house and two young children of her own. The other partner is now looking after these children in his home. The will stated that the house be left in Trust for the children until they are 21 and the rental from the property be used to help fund the upbringing of the two children (down from two wage earners to one and of course the need now for extra child care)
Under normal rules tax is to be paid on the profits, which are reasonable, since when you die your mortgage gets paid off.
remortgage and put the money into shares?
The situation is a non married partner dies leaving a house and two young children of her own. The other partner is now looking after these children in his home. The will stated that the house be left in Trust for the children until they are 21 and the rental from the property be used to help fund the upbringing of the two children (down from two wage earners to one and of course the need now for extra child care)
Under normal rules tax is to be paid on the profits, which are reasonable, since when you die your mortgage gets paid off.
remortgage and put the money into shares?
The Trust owns the house and the trust will pay income tax on the rental profits. The trust will be required to submit an annual Self Assessment tax return showing the trust income (rental profits, interest received etc).
If the trust invests some of its rental profits into stocks and shares, the trust will be subject to tax on dividend income received - although the taxation of dividends can be quite complicated.
If the trust invests some of its rental profits into stocks and shares, the trust will be subject to tax on dividend income received - although the taxation of dividends can be quite complicated.
Eric Mc said:
The Trust owns the house and the trust will pay income tax on the rental profits. The trust will be required to submit an annual Self Assessment tax return showing the trust income (rental profits, interest received etc).
If the trust invests some of its rental profits into stocks and shares, the trust will be subject to tax on dividend income received - although the taxation of dividends can be quite complicated.
Thanks Eric. Since this is the only income of the trust will it get a 'personal allowance' or will it pay at the standard 20% tax rate or something else?If the trust invests some of its rental profits into stocks and shares, the trust will be subject to tax on dividend income received - although the taxation of dividends can be quite complicated.
S
Trusts don't get the Personal Tax Allowance.
Children pay tax in exactly the same way adults do i.e. they generally do not get any tax breaks just because they are under a certain age. Obviously, every child has their annual Personal Tax Allowance (£6,475) which, by and large, most children never get to make use of to any degree as they do not have their own separate sources of income.
The taxation of trusts can be very complex. Here's a brief overview -
http://www.higgisons.co.uk/trusttaxation.html
Children pay tax in exactly the same way adults do i.e. they generally do not get any tax breaks just because they are under a certain age. Obviously, every child has their annual Personal Tax Allowance (£6,475) which, by and large, most children never get to make use of to any degree as they do not have their own separate sources of income.
The taxation of trusts can be very complex. Here's a brief overview -
http://www.higgisons.co.uk/trusttaxation.html
Eric Mc said:
But trust tax is at 20%?
It all depends as said earlier as to the type of trust. If it is classed as income then this will all end up in the 40% bracket. If this is children's pocket money then their allowances will make it tax free. I will send you details over to the person concerned and see what happens. Thanks for your advice to date.
S
Guys, as has already been said, talk to a trust specialist. Trusts are subject to income tax at up to 50% from April 2011(except for an allowance on the first £1,000)dependent on the exact nature of the trust.
However, if the income is distributed to a beneficiary and the beneficiary is not a 50% tax payer, they will be able to claim the tax back. Trusts are also liable to Capital Gains Tax but they do have a CGT allowance which is half the personal rate (unless the settlor set up more than one trust, in which case the allowance gets divided between the trusts subject to a minimum allowance per trust of a small amount I can't recall offhand circa £860-900).
However, if the income is distributed to a beneficiary and the beneficiary is not a 50% tax payer, they will be able to claim the tax back. Trusts are also liable to Capital Gains Tax but they do have a CGT allowance which is half the personal rate (unless the settlor set up more than one trust, in which case the allowance gets divided between the trusts subject to a minimum allowance per trust of a small amount I can't recall offhand circa £860-900).
Offshore trusts CAN have as many potential tax consequences as onshore trusts when any of the Settlor/Trustees/Beneficiaries are UK resident.
Sometimes, bar room advice is not good enough and you need to get the services of a good accountant/lawyer/financial adviser and sometimes you can get away with bar room advice. Trusts are not one of those instances. Find someone with experience and talk to them.
Sometimes, bar room advice is not good enough and you need to get the services of a good accountant/lawyer/financial adviser and sometimes you can get away with bar room advice. Trusts are not one of those instances. Find someone with experience and talk to them.
Edited by ukshooter on Thursday 20th January 13:04
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