Family Trusts for Wealth Protection & Tax Efficiency
Family trusts are a powerful but often misunderstood tool. Used correctly, they can protect assets, reduce IHT, and preserve wealth across generations.
Types of Family Trust
Bare Trust
The simplest form. The beneficiary has an absolute right to the assets and income. Often used for children, with assets becoming theirs at 18.
Discretionary Trust
Trustees have discretion over how income and capital is distributed among a class of beneficiaries. Very flexible for tax planning but subject to periodic IHT charges.
Interest in Possession Trust
A beneficiary has a right to income as it arises. The trust assets form part of their estate for IHT purposes.
Loan Trust
The settlor lends money to the trust. Only the growth on that loan is outside the estate. A useful way to reduce IHT without giving up access to the original capital.
Key Benefits of Using a Trust
- Remove assets from your estate for Inheritance Tax purposes (7-year rule applies)
- Protect family wealth from divorce, creditors or bankruptcy
- Control how and when wealth is passed to children or grandchildren
- Income splitting to use family members' lower tax rates
- Continuity of ownership for family businesses
- Protection of assets for vulnerable or young beneficiaries
Trust Taxation – What to Know
Discretionary trusts pay 45% tax on income above £500, and face a 6% IHT periodic charge every 10 years on assets above the nil-rate band. Careful structuring is essential to ensure the trust remains tax-efficient.
Trusts must be registered with HMRC's Trust Registration Service (TRS). Non-compliance carries penalties.
Is a Family Trust Right for You?
Trusts are not one-size-fits-all. We'll assess your assets, family situation and tax position to recommend the right structure.
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