The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
The taxation of trusts is based on the personal tax regime. Trusts are subject to the same taxes as individuals: income tax, capital gains tax and inheritance tax. However, the application of those taxes varies according to the status and terms of the trust. The determining factor is most commonly the entitlement of the beneficiaries. Other relevant factors are the date of commencement of the trust, the age of the beneficiaries and whether it was created during lifetime or on death. Therefore, the first step in working out how a trust is to be taxed is to read the trust instrument to assess what type of trust it is.
Trust property is held by trustees for the benefit of beneficiaries. The beneficiaries’ rights to the property are set out in the trust instrument or established by law. A trust fund comprises:
The tax status of the trust depends on the beneficiaries’ entitlement to capital and income.
A ‘bare trust’ is really no trust at all. The term applies where the beneficiary of a trust has an absolute right to both capital and income. Beneficial ownership of the trust property lies with the beneficiary, although, it may be held legally by or ‘in the name of’ the trustees. See the Bare trusts ― IHT guidance note for examples of bare trusts.
The term ‘interest in possession’ has been defined as ‘a present right to present enjoyment’. In a practical sense, it refers to a
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