We have a couple who own a second property jointly (we are currently awaiting confirmation on if it is joint tenants or tenants in common).
They want to put the property into a discretionary trust with their children and remoter issue as beneficiaries (settlors specifically excluded).
From a practical perspective, they would prefer one discretionary trust so that the property has only one owner to keep things simple. It therefore seems likely that a joint settlor trust is appropriate here, but I have never acted practically on this.
Am I on the right lines with these thoughts, or have I misunderstood anything:
IHT My understanding is that the trust will effectively be treated as two separate trusts and will therefore half of the value will be considered in each of the two trusts. This will leave the trust below IHT reporting requirements for now (as the value of the property is less than 80% of two NRB and no previous chargeable transfers from either settlor). In the future, we would split the value of the trust in half and then submit IHT100 forms etc. for each half.
Self Assessment This would be a single trust for income tax and CGT purposes so would submit a single SA return (if required) and would have the normal trust annual exemption for a trust (£1,500, as neither settlor has created any other trust) and one £500 low income exemption.
TRS There would be a single trust for TRS purposes and the trust would need to be registered once reporting both settlors. This ties in with the single Self Assessment.
2 similar trusts are required IMO. How exactly one joint job will function for any tax purpose is largely uncharted waters as the statutes are vestigial. Also the clients will miss out on the available valuation discounts. 10% each for CGT on disposal into trust and then for the trustees. For IHT make the trusts on separate days: related property on first disposition into trust but 10% discount on second and for trustees (RP not applicable to non-charitable trusts).
Some added admin costs so cost-benefit analysis on worthwhileness of discounts. 2 TRS registrations but a once-off cost probably for some time. No need to change the title if the clients are the trustees of each just a form A if currently TICs and Form N if there are any consents to transfer in the trust documents.
If the clients are presently dealing with rent collection themselves or via an agent the arrangements can continue, just split the net between the 2 trusts for tax return and trust accounts. I am not a property expert but I imagine the lease/tenancy agreement needs any attention for the change in ownership of the landlord’s interest. Sorry to use an uncouth word but Bank. Check on the mandate and any continuity issues. Both issues relevant even for one trust.
Thanks for your thoughts. I apologise for not picking up that a reply had arrived for so long.
In terms of CGT discounts, the gain will be heldover when the individuals put the property in the trust. In my mind, this leads to no difference in the overall CGT position (other than the availability of only one AE when the property is sold by the trust, which is absolutely tiny).
What could be more useful is the potential discount in the valuation of the “second half” of the property going into trust, which could reduce IHT if either the settlor dies shortly after making the CLT or the valuation of the property goes up. I’ll give this some thought.as this could easily counteract the minor complications of having two trusts.
Has anyone else had any experiences with setting up a joint-settlor trust and the admin if it is in one trust?