Putting Property into a Trust

The use of trusts continues to be an excellent planning tool for inheritance tax, capital gains tax and income tax planning.  They are also extensively used to preserve and protect the family’s assets by ensuring the assets pass to the correct people when they have the necessary maturity to inherit.

Trusts vs. Gifting Your Property

Gifting property is not always practical; the gift needs to be made at least 7 years before inheritance tax liabilities become an issue. Any gifts need to be made without reserving any rights to the asset, which means that you would need to move out of the property or pay full market rent while living there. Even in that instance, the property can still be claimed by third parties in financial disputes or cases of divorce, so while this avoids inheritance tax it does not ensure that your family can maintain possession.

Rental Properties and Trusts

You can place rental properties into a trust whether they are new acquisitions or you have owned them for some time. It is best to set up a trust before buying the property and take out the mortgage through your trust. Regardless of whether a life interest trust or a discretionary trust is created named beneficiaries can occupy the property so this is an excellent way to provide adult children with their own home. There are also potential stamp duty savings in certain situations.

If the beneficiaries choose to live in the property, it can trigger their principle private residence relief, which exempts that property from capital gains tax. When the property is sold, the trustees can claim exemption for the whole period of ownership as long as it has been occupied one beneficiary at all times.

Paying Tax on Properties in Trusts

While properties in trusts may reduce inheritance tax liabilities and even mitigate capital gains tax, there are tax obligations associated with trusts and properties within them. Taxes arise on every tenth anniversary of the trust’s creation, depending on the value of the assets in it. A tax return will also need to be filed if the trust assets produce a rental income or capital gains from a disposal(s) – this can all be managed by our team to keep your trust in order and to ensure that you meet all of your obligations.