Trusts usually arise under a Will, but can also be set up during the life of the person who makes the original gift into the trust (the Settlor). In the past, trusts were often used to avoid or reduce tax, and over the years the taxation of trusts has become very complicated.
You may have an interest in a trust without realising it, as a simple trust arises automatically whenever an asset is owned jointly, for example if you own property with someone else. The terms of that trust will set out how that property will pass if one of the joint owners were to die. Joint assets such as property can be held as ‘Joint Tenants’ and ‘Tenants in Common’. For more information about property trusts, please contact us.
If a trust has been expressly set up by Deed or under a Will, or if the Trustees are different from the Beneficiaries, it is likely that it will need to be registered with HM Revenue & Customs. This is because trust income and gains is, in some circumstances, taxed differently from the income and gains of an individual.
In order to fulfil their duty of care towards the Beneficiaries, the Trustees will need to:
- prepare annual trust accounts, showing the trust income, gains and spending;
- prepare and submit an annual Trust and Estate Tax Return to HMRC; and
- deal with any trust-related decisions that need to be made.
In most cases, where there is a substantive trust, the Trustees appoint an accountant or lawyer to deal with the day-to-day administration on their behalf.