Husband & wife own two buy to let flats valued at £308,000 and £315,000 respectively. Both flats are free of mortgage.
There are no CGT issues as the properties were recently purchased and they have not increased in value.
They are considering transferring both flats into a Discretionary Trust with the usual potential beneficiaries including their issue. The purpose is IHT mitigation.They have made no previous transfers into Trust.
Husband & wife will be the Original Trustees.
Husband & Wife are the current legal owners of the flats so there will be no need for a Transfer of the legal Title. It will just require a Transfer of the beneficial interest from husband & wife in their personal capacity to themselves in their capacity as Trustees.
What is the position with regards to Stamp Duty Land Tax?
There is no SDLT. They will need to put a restriction on the title at the Land Registry in standard form A. Personally I would prefer there to be a third trustee but that is not essential.
Consider putting a 90% interest in the trust with the clients retaining 10%. They could then be beneficiaries of the trust without any reservation of benefit arising due to FA 1986 s 102B(3). It is then a settlor interested trust so the income is automatically taxed on the settlors but the trust assets are out of their estates for IHT.
The Settlors intention is for the rental income from the properties to be used to pay for the school fees of their children aged 10 and 12 years.
I understand that if the income from the Trust is paid to the Settlors minor children the income will be treated as the Settlors income.If this is the case will it effect the Settlors IHT position given that they will be seen as benefiting from the Trust?
Whilst many consider the payment of school fees to be the parents’ responsibility, I recall a case a few years back in which the court held that the parents received no benefit by the payment of their children’s school fees out of a trust. Accordingly, the payments should not affect the settlor’s IHT position.