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Flashcards in Chapter 8 Deck (37)
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1
Q

Who can take out a mwpa policy

A

On your own life only only from the start of the plan
For spouse or children only
They are bare or absolute trust and are not flexible

2
Q

Who can create a mwpa

A

Single
Divorced( this does not change their interest)
Widowed
For the benefit of their children ( not step children )
Cannot be a joint plan
It provides a higher protection than non statutory trusts for bankruptcy
Court can vary following divorce but divorce will not change their interest

3
Q

Main reason for taking out mwpa policy

A

To protect against creditors

4
Q

What else are non statutory trusts called

A

Express trusts

5
Q

Where a non qualifying policy is held under trust what are the chargable events

A

Death of life assurance
Maturity or full surrender
Part surrender a oeuvre 5%

Assignment of plan to trustees is not chargable

6
Q

How are statutory trusts created

A

By law
Under married womens property act
Intestacy rules

7
Q

Who is liable to pay tax on a chargeable event again

A

If the settlor is alive and UK resident just before the chargeable event or if it’s in the same tax year as death at the highest marginal rate subject top slicing relief

It will be taxed on the trustees if the event happens in the tax year after the date of death or if the settlor is a non-resident
The trustee tax rate is 45% for a discretionary and a&m trust it will have a standard rate band of £1000 within the £1000 there is a 20% tax charge any Excess being taxed at 45%.
This means there will be an additional tax liability of 25% due to the 20% tax credit

8
Q

If the settlor is alive and UK resident when a chargable event arises who will be assessed income tax on that again

A

The Setlor

9
Q

What is the dead settlor rule

A

Policy is taken out before 17 March 1998 with both the trust and settlor died before that date this income tax liability falls on the settlor however they are dead so there is no tax liability on the gain as long as the policy has not been varied or enhanced since 17 March 1998

10
Q

Can a nontaxpayer reclaim the 20% tax credit provided by UK policy

A

No

11
Q

Who has to be assessed for income tax on any gains that rise on policies under a bear trust or absolute trust

A

The beneficiary unless this is the parent of an unmarried minor beneficiary and the chargeable event again for the tax year exceeds £100 the whole of the gain be taxable on the parent.

This is for each parent so therefore maximum limit of £200 will apply when parents the sole beneficiary of set up a joint bear trust.

Be aware the hundred pound limit relates to all income in one tax year

12
Q

Do you pay capital gains tax on a life policy in trust

A

I life policy is only subject to capital gains tax if it is assigned for actual consideration this rarely happens with the trust policy

13
Q

What are the implications of placing an existing life policy into trust

A

Regular premiums -it is the total value of the premiums
Regular premiums could be covered under the normal expenditure from income exemption as long as it does not affect the standard of living for The settlor
The annual £3000 exemption can also be used
For a single premium policy the single premium will be the transfer value for I HT

Premiums for policies held in absolute trust will be treated as pets

For most of the trust created after 22 March 2006 and all discretionary trust the excess over the available exemption is a chargeable lifetime transfer and taxed at 20% if over the 325,000 less transfer is made within the previous seven years
There may also be a 10 year anniversary periodic and ex-it charge

For interest in possession trust before 22 March 2006 all premiums were treated as pets but any changes since 6 October 2008 will bring them into line with new rules

14
Q

What is pre-owned asset tax poat

A

Anti-avoidance measure targeted at more complicated IH T arrangements such as gifting of family home and continuing to live there
This does not include loan trusts and discounted gift trust that could include business trusts

It is a freestanding annual income tax charge on gifts made since 18 March 1986.

The yearly income benefit that the donor is deemed to receive from the gift that income tax charge is levied on the donor and not the current owner at the marginal rate

15
Q

What are the three categories of PoAT

A

Land including buildings
chattels
intangible assets held in a secular interest trust such as life policies

Land and chattels will be revalued every five years
This official rate of interest for POAT is 3% on the asset market value
I charge to income tax will only occur if the value of the benefit is more than £5000 a year i.e. the minimum value is 166,666 or less
£166,66 x3%=£5000
The donor is subject to income tax charge on the whole amount and not just the XS

16
Q

If a POAT charge could apply to an arrangement for 2015/2016 the GWR election must be made by when

A

31 January 2017

17
Q

When could it be worth making an election for a gift to be treated as a GWR

A

The asset may qualify for hundred percent agricultural business relief

The spouse exam she would apply

The value of the asset plus the rest of the estate would fall in to the new rate and under

The asset owner is younger and healthier

18
Q

What reasons would you elect to pay the annual POAT charge

A

The donor can afford to pay the annual charge

The donor has a short life expectancy for age

The amount of the POAT charges below 5000 the donor does not want to pass the IHT burden to the Donee

19
Q

What rate of interest applies to the POAT

A

3%

20
Q

How do business trusts work

A

Can be limited company or partnership

Each shareholder takes out and own life policy in trust for the value of the shares

The cash sum is in trust and is used by the deceased critically ill shareholding
Normally a discretionary trust
The beneficiaries will be the other shareholders the settlor is also a beneficiary so it can revert back if they leave the firm

21
Q

How does a cross option agreement work for business trusts

A

Where are surviving shareholder partner have the option to buy the decision as the deceased personal representatives have the option to sell

It will qualify for business relief if owned for a least two years
The premiums paid for the life policy will be classed as a CLT unless within 3000 annual exemption or out of normal expenditure

The policy proceeds will not be in the beneficiaries of state and it would not class is a 
GWR as it is purely a commercial basis
22
Q

Is interest in possession trusts trustee residence status relevant for income and cgt?

A

Relevant for discretionary trusts not for IIP trusts

23
Q

Why are pensions established under a trust

A

To keep them separate from the employer
Most run under a trust deed setting out, who, when, how much etc
Normally 3 trustees some for employers and some for employees

24
Q

Outline the IHT on OPS death benefits

A

Most are written under a disc trust
The trustees control who gets the death benefits not the member
It needs to be paid out within 2 years or will be unauthorised payments
Expression of wish is just that
Neat is paid out at the members discretion

25
Q

What act now allows more pension flexibility

A

Taxation of pensions act 2014

If a member dies under age 75 and if income lump sum get paid away within 2 years then it’s free of tax otherwise it will be 45% tax

If over 75, lump sum is taxed at 45% and income at nominal rate of beneficiary

IHT issue can arise if member was ill health the contribution could be classed as a CLT

26
Q

What is a non uk resident trust for Income tax and CGT reasons

A

If all the trustees are non residents

It will be uk taxed if 1 trustee is non res and Setlor was non res when the trust was made or when funds were added

27
Q

What date did tax relief on Personal pension life cover stop

A

6 dec 2006.
If the plan is put into a trust the premiums will be a transfer of value for IHT but normally falls in the annual exemption and will be paid out free of IHT

28
Q

If there’s no trust in place in a RAC pension what happens to the benefits in death?

A

They were never written into discretionary trust so all death benefits paid into members estate and taxed for IHT unless a personal trust is used. A by pass trust cannot be used

29
Q

Why are letter of wish under pension not legally binding

A

So that they can be paid away without IHT under discretionary trust rather than absolute trust

30
Q

What is a relevant life policy

A

Employer funded life policy in the life of the employee
Conditions are
Member must be under 75
No surrender value
Benefits payable to individual or charity via trust or directly

It Can also cover terminal illness cover whilst employed

31
Q

Advantages of holding life assurance and pensions under a trust;

A

Paid to intended beneficiaries
Paid outside the deceased estate
Don’t have to wait for probate
Can allow for different beneficiaries to benefit
Plan holder can be trustee and have some control

32
Q

What is a statutory trust

A

One created by law
MWPA 1882, mainly under bare or absolute - not flexible.
Don’t need to be married
Can’t be joint plans
Must be on your life not life of another
Provides a higher degree of protection in the event of bankruptcy

Also under intestacy

33
Q

Who can benefit from MWPT?

A

Spouse only
Children only
Spouse and children

34
Q

Under MWPA is a deed of assignment needed?

A

No as the trustees are legally appointed under MWPA

35
Q

What is an express trust

A

A non statutory trust

36
Q

Procedure for new Non statutory trust

A

Complete a declaration of trust appointment them as sole trustee
Then issue power to appoint other trustees under the trust
Once policy issued other trustees are appointed by a simple deed

A declaration of trust for new or existing plan is exempt from stamp duty

37
Q

Will an assignment of existing life plan into trust be a transfer of value for IHT purposes?

A

Yes