Trust Planning & Gifting: An Overview

Tax planning and a solid gifting strategy can help reduce the estate Inheritance Tax rate to as low as 34% – a substantial saving from the UK’s standard 40% rate.

Preparing your trust for maximum tax advantages is a challenge that cannot be approached without a thorough understanding of the costs and consequences. If your goal is to preserve as much of your wealth as possible for your beneficiaries, proper trust planning begins with meeting wealth management professionals and developing a multi-dimensional approach to your estate trust.

A solid financial plan includes a strategy of how to collect and distribute financial gifts without risking a property’s financial future. For individuals who wish to pass as much wealth as possible to their beneficiaries, wealth management consultants can help you decide how much you and your estate can afford to provide recognised charities.

Individuals who wish to make financial gifts for a combination of goodwill and inheritance tax purposes must not only follow a specific gifting process, but should also be careful that they retain control over their capital, assets and income during their lives. There are several options as to the type of trust that best meet these goals.

Reducing Your Inheritance Tax Exposure

In the UK, estates valued at more than £325,000 at the time of death are subject to Inheritance Tax. If 10 percent of the estate has been left to a registered charity, the amount of tax liability can be significantly reduced below the standard and prevailing 40 percent rate.

However, to qualify for this reduction there are a number of rules that must be recognised and followed. The best way for an individual to protect their estate is to meet with an Inheritance Tax & Trust professional as soon as possible.

Gifts made to a “qualifying” charity during the individual’s lifetime or in the individual’s will are exempt from Inheritance Tax. However, in order to qualify, the individual must give charities an amount equal to at least 10 percent of the net value of the estate.

Many UK taxpayers do not fully understand how the net value of the estate is calculated. A simplified description of the net value of the estate suggests that: “The net value of your estate is the sum of all the assets after deducting any debts, liabilities, reliefs, exemptions and the nil-rate band.” If this is confusing, make a date to meet with an Inheritance Tax & Trust professional.

What are Qualifying Charities?

Qualifying charities must meet certain standards set by HM Revenue & Customs (HMRC). For the purpose of Inheritance Tax, Community Amateur Sports Clubs (CASC) are also considered a qualifying charity. Any individual considering donations and gifts to charities should fully determine if the charity is a qualifying charity. The easiest way to determine this is to ask the charity for the HMRC charity reference number. Once received, the individual can verify with HMRC.

The Tax Act puts forth four conditions that “a body of persons or trust” must meet in order to be considered qualified.

• The organisation must be established for charitable purposes only.
• The charity must meet the jurisdiction condition.
• The organisation must meet the registration condition.
• The charity must meet the management condition.

A “body of persons” is determined to include companies, unincorporated associations and other groups. A body of persons or trust is considered to be established for charitable purposes if:

1. The organisation was established by a governing or founding document that restricts the organisation’s purpose as set forth in the Charities Act of 2006.

2. The organisation must be founded in an EU Member State or in a country listed as a relevant territory.

3. All the organisation’s income and assets are used for the stated charitable purpose.

There are a number of other criteria but if an organisation does not meet these core principles, it will not be a qualifying charity by HMRC. Charities that wish to capitalise on the Gift Aid scheme, other schemes and the charitable tax exemptions, must complete and file a “Charities Application Form (ChA1). This form will be used by HMRC to determine if the charity meets its statutory regulations.

If you are seeking advice about anything raised in this article, Expert Wealth Management can help you. Call us today on 01993 772467 or contact us directly online here.

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About the Author

Jon is a highly qualified and experienced Chartered Financial Planner and Certified Financial Planner with over 27 years’ experience. He loves working with clients who are passionate about getting the most out of life and feels his job is to support them living life to the fullest. Read more from Jonathan...
This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

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Terrific meeting, many thanks. We always drive back from meetings with you wishing we'd met you and Dom years ago - but at least we're with you now! RB

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