Tax-Efficient Trusts: Maximising Benefits in Northern Ireland
How trusts can help with inheritance tax planning and other tax reliefs
Managing wealth and securing a financial future for your loved ones is a key concern for many individuals and families.
In Northern Ireland, trusts offer a versatile and powerful way to achieve these goals while providing significant tax advantages, particularly in inheritance tax (IHT) planning.
Wilson Nesbitt Tax Director Liam Coulter and Wills & Estates Solicitor Gareth Morgan specialise in helping clients navigate the complex legal landscape of tax and trusts, ensuring you make informed decisions and reap the benefits.
What is a Trust?
A trust is a legal arrangement where assets such as property, investments, or cash are held by trustees for the benefit of others (beneficiaries). Trusts can be tailored to suit a wide range of objectives, including preserving family wealth, supporting a vulnerable beneficiary, or making charitable donations.
Trusts can be a great way to reduce IHT while retaining an element of control over gifts.
The Role of Trusts in Inheritance Tax Planning
Inheritance Tax is charged at 40% on estates valued above the current nil-rate band (£325,000 per individual in 2023/24). Trusts can help reduce the IHT burden such as;
1. Transferring Assets Out of Your Estate
By placing assets into a trust, you may remove them from your taxable estate, reducing your exposure to IHT. For example:
● Discretionary Trusts: Allow you to transfer assets while retaining control over how they are distributed. This flexibility can be especially useful in changing family circumstances or when beneficiaries may not be financially responsible.
● Interest in possession trusts: Allow you to transfer assets, pay all of the income to the beneficiary but retain control of the capital. IHT may still be charged at the time of your death, however the trust can create a situation where the lifetime value is lower than if the assets were directly in the beneficiary’s estate.
● Bare Trusts: Beneficiaries receive assets outright, often leading to no IHT charge if the settlor (the person creating the trust) survives for seven years after the transfer.
2. Using the Nil-Rate Band and Other Reliefs
Trusts can maximise the use of your nil-rate band and tap into reliefs such as:
● Business Property Relief (BPR): Assets such as shares in qualifying businesses may benefit from up to 100% IHT exemption.
● Agricultural Property Relief (APR): Applicable to farming assets held in a trust.
Lifetime gifts into trusts of less than the nil rate band of £325,000 should avoid the lifetime IHT 20% charge and fall out of your estate after 7 years.
Married couples could each avail of their own NRB and potentially transfer £650,000 into a trust, survive 7 years and mitigate any IHT liabilities.
3. Providing Long-Term Tax Planning
Trusts can shield assets from future tax charges by ensuring wealth is distributed in a tax-efficient manner. By properly setting up a trust, you can mitigate your IHT liabilities and control how wealth is passed on after you’re gone. For example, they can be structured to benefit multiple generations without assets re-entering individual estates.
Other Tax Advantages of Trusts
In addition to IHT planning, trusts offer broader tax benefits:
● Capital Gains Tax (CGT) Efficiency: Trustees can manage assets in ways that minimise CGT liability, including making use of annual allowances to distribute gains to beneficiaries with lower tax rates.
● Income Tax Reliefs: Income generated by trust assets may be taxed at lower rates or apportioned among beneficiaries to optimise tax efficiency.
● Stamp Duty Land Tax (SDLT): Trusts can sometimes mitigate SDLT when transferring property to beneficiaries.
What are the common pitfalls to avoid when using trusts
Failing to revisit and update the trust as life circumstances change. This can lead to unintended distributions or tax implications.
Not considering the best type of trust suited for your needs, which can impact on tax and beneficiary rights.
Why Trusts Matter in Northern Ireland
The legal and tax systems in Northern Ireland have unique aspects compared to other parts of the UK. A local solicitor with expertise in trusts can ensure you capitalise on opportunities while remaining compliant with regional laws and HMRC requirements.
Choosing the Right Trust for Your Needs
The choice of trust depends on your personal circumstances, financial goals, and family dynamics. At Wilson Nesbitt Solicitors, we take a personalised approach:
- Initial Consultation: We’ll explore your financial situation, future aspirations, and concerns.
- Tailored Advice: Based on your needs, we’ll recommend the most suitable type of trust and explain its implications.
- Implementation and Ongoing Support: We’ll handle the legal documentation, registration, and ongoing administration of your trust to ensure it remains compliant and effective.
Why work with our team at Wilson Nesbitt?
With decades of experience in tax and estate planning, Wilson Nesbitt has earned a reputation as a local, trusted advisor to clients across Northern Ireland.
Our team combines technical expertise with a client-focused approach, ensuring your wealth is protected for generations to come.
Get in Touch
Take control of your estate planning with tax-efficient trusts. Contact Liam, Gareth and our expert team to arrange a consultation and explore how we can help you maximise the benefits of trusts in Northern Ireland.
Secure Your Financial Future Today; call 0800 840 9293 or make an enquiry here.