The Office for Tax Simplification has proposed widespread changes to Capital Gains Tax (CGT) that could see the tax doubled as well as some reliefs abolished.
It is likely to drive the gifting of assets. But with clients concerned about asset protection and wanting to delay outright gifts we expect to see a renewed interest in settlor life interest trusts as individuals look to cap CGT liabilities.
Our Director Debbie Wilson who acts for private individuals and their families, comments:
“A settlor life interest trust is a very specific trust that allows an individual to crystalise a chargeable capital gains tax disposal whilst continuing to benefit from the income generated by those assets.
With changes to CGT mooted for some time now, we have already seen an increased interest in this type of trust, particularly from individuals with property or land interests or non-business shares where there has already been a significant increase in value and further growth is expected, and we expect the OTS announcement to drive further interest in this type of trust.”
Settlor life interest trusts do not allow an individual to avoid CGT, they are actually paying tax earlier, nor does it place those assets outside of an individual’s estate for inheritance tax.
Debbie explains: “This will be of interest to clients where a disposal is on the horizon and they want to try and cap the overall CGT payable. Assets that are to be placed in a settlor life interest trust will need to have already appreciated in value and CGT will be paid on disposal into the trust on that gain at the current rate – 28% on residential property and 20% on all other assets.
“This means that settlor life interest trusts are only suitable where a further and considerable gain is expected from those assets. The taxation and law around trusts is complex and specific advice should always be taken before any planning is implemented.”