Advisers warned over trust tax charges

The B2B wills and trusts adviser warned intermediaries that failure to set up trusts correctly could be vulnerable to complaint and compensation.

TAPS said assets of a certain size should generally be placed in multiple unrelated trusts which avoid periodic and exit charges that apply to any discretionary trust with assets exceeding the nil-rate band under the Rysaffe Principle.

The principle relates to a case Rysaffe Trustee Company v Inland Revenue Commissioners in 2003 where a series of trusts were created on consecutive days.

The principle is that by establishing a series of smaller trusts instead of just one, clients can reduce the impact of the 10-yearly periodic charge by benefiting from a nil-rate band for each individual trust.

Jeff Smith, commercial director of TAPS, said: “With the rising popularity of trusts, we are urging advisers to be on their toes and not to expose their clients to these unnecessary tax charges by placing sizeable assets in single trusts.

“This is by no means an endemic problem but as trusts are set up, in many cases by less experienced advisers, further down the line there could be a spate of unexpected tax liabilities with ramifications for clients and advisers alike.”