We advised our client on the tax implications where funds had been added to a trust

Our client approached us for advice on inheritance tax reporting in relation to a family trust, explaining:

“I have a family trust established in 2009, with a ten-year reporting requirement for inheritance tax purposes. This needs to be dealt with on the coming 2019 anniversary. I would like advice on the liability due and guidance on how the trust will be affected in future.”

How we helped

On reviewing the trust documentation, it became apparent that, although the trust was set up in 2009, it had received substantial funds after this date from another trust that had, itself, been established in 1960. This was, therefore, a trust to trust transaction and meant that the trustees had to potentially consider two reference dates for the inheritance tax reporting. The 1960 trust had also added funds to another separate trust which belonged to our client’s cousin and therefore the implications of this had to be taken into account.

We set out a report for our client detailing the background to the legislation, which was relevant to the matter in hand, and advising on what reporting would be necessary now and in the future. 

The outcome

The inheritance tax returns and the tax payable was submitted to HM Revenue & Customs which brought the compliance up to date. Our client was made aware of the implications of making distributions from the trust in the future and what will be required at the relevant reporting deadlines going forward.

In general, trustees should be very wary of adding any funds to a trust and the tax implications that this might have. We recommend that if anyone is thinking of setting up or adding funds to a trust that they seek professional advice before doing so.