Episode 401
Tax Experts Explain How Trusts Really Work
EP 401 - Recent UK government changes to trust law could have major implications for wealth protection, estate planning, and business ownership.
In Tax Without Bullshit pt. 2, Andy sits down with Oury Clark tax experts Jeremy Coker and Emma FlorentinLee to break down what the new rules mean, who they affect, and how to decide if a trust is still worth it.
From common myths to practical strategies, this episode explains how trusts work in the UK, why they’re not just for billionaires, and how changing legislation could reshape their future.
Essential listening for business owners, financial advisors, and families looking to safeguard assets.
*For Apple Podcast chapters, access them from the menu in the bottom right corner of your player*
00:00 Tax Without Bullshit pt.2 - UK Trusts
02:49 History of Trusts
03:41 Structure of Trusts
04:14 Types of Trusts and Their Uses
09:03 Tax Implications and Misconceptions
21:34 Global Perspectives on Trusts
24:51 Trustees and Beneficiaries
25:13 The Role of Trusts in UK Tax Residency
26:36 Offshore Trusts: Myths and Realities
28:53 Excluded Property Trusts Explained
31:09 Complexities of Foreign Trusts
41:58 Living Trusts and Their Implications
45:57 Trusts in Business and Family Planning
51:15 Wrap Up
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Transcript
Think trusts are just for the super rich dodging tax?
Speaker A:Think again.
Speaker A:Today we are pulling back the curtain on what trusts actually do and why they're not the magic tax loophole everyone thinks they are and the real reasons you might or might not want one.
Speaker A:Forget the jargon, forget the bullshit.
Speaker A:Let's get into this fascinating, messy truth about trusts.
Speaker A:Check it out.
Speaker A:Hello and welcome to Tax Without Bullsh.
Speaker A:I am joined by my esteemed colleagues Emma Florentine Lee and Jeremy Coker, both long time experienced tax advisors.
Speaker A:Now today we're going to talk about trusts, a word that excites much excitement from people at times.
Speaker A:And I think there's a sort of general feeling from a lot of people that trusts are the way that rich people hide all their money and don't pay tax.
Speaker A:And it's often a question I get from people who aren't so rich saying, should I be using a trust, how do I use a trust?
Speaker A:And I think, you know, there is this sort of slight focus on tax, as it were, and that this is a way to sort of get out of tax.
Speaker A: ly since the rules changed in: Speaker A:I mean, I don't know whether Emma or Jeremy, you want to comment on that.
Speaker A:Like as in trusts without a doubt have uses and we're going to go into a little bit of the ways you can use them.
Speaker A:But Jeremy did some internal training yesterday and I thought what he said was very apt.
Speaker A:He started his training by saying if your aim is to reduce tax or tax avoidance as it's unfairly perhaps called, and you want to use a trust for that purposes, you're at the wrong end of the stick, was sort of what you were saying.
Speaker A:You're at the wrong end of the purpose.
Speaker A:What would you say?
Speaker B:Yes, like you said, trusts do have their tax advantages, but the bottom line really is trusts are there for a purp.
Speaker B:They're there for protection of assets, they're there for keeping assets in place so that they go to the right place.
Speaker B:There are many reasons that you'd like to use a trust, but if tax planning is the desire, then it's wrong.
Speaker B:What I tend to say is if you talk about a trust as my trust, then you've started wrong.
Speaker B:As in there can be a trust because you want to protect something, you want to protect assets, you want things to go to the right place, you want to look into the future.
Speaker A:The operative word being my trust in that sentence.
Speaker B:Yes.
Speaker A:It's not, it's not my.
Speaker A:And let's explain a little bit what, what a trust is.
Speaker A:I mean, interestingly, I looked up the history of trust.
Speaker A:You know, they were mainly invented in Britain.
Speaker A:The.
Speaker A:When they did the Crusades meant many, many, many years ago.
Speaker A:The.
Speaker A:The rich landowners effectively went on these crusades, the knights, and they left their number one in charge, you know, Bob, or wherever he was called, look after everything, run everything.
Speaker A:Would you run the estate.
Speaker A:This is, you know, world of feudalism.
Speaker A:And they said, right, brilliant.
Speaker A:Crusade's over, can I have it all back?
Speaker A:And amusingly, Bob said, well, no, it's been actually rather wonderful.
Speaker A:I've been earning lots of money and I'm going to keep it.
Speaker A:So they then, and I may get this slightly wrong because it was months ago since I read it, but they then basically went to the King and said, you can't do this, you know.
Speaker A:And so out of all of this conversation, they ended up inventing legally this concept of trust that you could put someone else in trust of your assets and it wasn't necessarily them.
Speaker A:So Wardy's a trust.
Speaker A:It has someone who settle it, it has someone who looks after it, it has someone who benefits from it.
Speaker A:But maybe, maybe you elaborate.
Speaker C:Well, very kind of.
Speaker C:Broadly, you have a trust where your legal and beneficial ownership is different, vested in different people.
Speaker C:That is it ultimately, that's as complicated as it is.
Speaker C:There are many different types of trust and of course, it does get more complex than that.
Speaker C:But anyway, you've got a situation where your legal ownership and the person who's beneficially entitled to that asset are two different people.
Speaker C:You have a trust in some form or other, then going, looking at it a.
Speaker C:In terms of kind of trusts that you are setting up for the benefit of other people.
Speaker C:You have three classes of people involved with the trust.
Speaker C:You've got the settler, that is the person who puts the bulk of the assets into the trust.
Speaker A:So examples always help.
Speaker A:So let's say you had a car and you wanted to pass this asset to someone.
Speaker A:I could be a settler and put my car into trust.
Speaker C:Into trust.
Speaker C:Yeah, yeah.
Speaker C:If you've put the asset in, you are a settler of that trust.
Speaker C:And a trust can have many settlers.
Speaker C:I think there's sometimes a misconception, it's the person who wrote that trust deed almost effectively and signed it off in the first place.
Speaker C:But anyone adding value to a trust is a settler of the trust.
Speaker A:Also important to understand that because you know, this is not something you'll find on company's house like it's in.
Speaker A:It's not something you go and register.
Speaker C:I mean, technically, now, now, now there.
Speaker A:Is, but it's a contract.
Speaker A:It's basically an agreement.
Speaker C:Yeah, but it doesn't even have to have an agreement.
Speaker C:You can still have trusts.
Speaker C:I think the rule is, and the lawyers, I'm sure, will tell me otherwise.
Speaker C:But I think as long as if the trust holds land, it's got to be written on deed.
Speaker C:But otherwise it doesn't even need a trustee.
Speaker C:Obviously, you would be well advised to make sure you have one.
Speaker A:A deed is something that, a formation, stronger contract that is witnessed.
Speaker C:Yeah, well, and also it lays down all the powers that the trustees.
Speaker C:So those are the legal owners of the assets.
Speaker C:They're the ones in charge of the assets in the trust.
Speaker C:They've got to manage those trusts and they've got to abide by the rules that are laid down in the trust deed.
Speaker C:Now, unlike other kind of.
Speaker C:If you're used to kind of forming companies or whatever, you kind of tend to look at your articles and they're broadly the same, one to another, a trust deed, one trustee and a second trustee are going to look totally different.
Speaker C:They are bespoke deeds written for the trust.
Speaker C:There is no format that these are written in.
Speaker C:Sometimes they're three pages long, sometimes they're 75 pages long.
Speaker A:So taking the car analogy, you would say, okay, I'm taking my car and I want my kit, my, my Mustang, my Ford Mustang, which I'm very much enjoying.
Speaker A:I want my son to have my Ford Mustang.
Speaker B:Yes.
Speaker A:And therefore I could say, I want to put my car, I'm the set of law, into a trust.
Speaker A:So I basically write a contract, a deed, sort of, you know, slightly stronger contract.
Speaker A:And I say, well, my car, I would make my wife say, the trustee and say, right, well, you're in charge of it now.
Speaker A:You know, you've got to make sure my car is maintained and isn't sold or scrapped or, you know, this is my lovely Ford Mustang.
Speaker A:You know, I want him to get it in a good condition.
Speaker A:And then the beneficiary, the person who's going to benefit from this asset is my son.
Speaker A:Is that fair?
Speaker C:That is fair, yeah.
Speaker B:I think that's the point.
Speaker B:You made the point as you explained the position, as in, like you could, you could actually give your Ford Mustang to your son and he could sell it the next day?
Speaker A:Yes.
Speaker B:And you don't you love the Ford Mustang?
Speaker A:Yes.
Speaker B:You want to keep the Ford Mustang in the family?
Speaker C:Yes.
Speaker B:You know, you want the family to have this car for a longer time.
Speaker A:Well put, Jeremy.
Speaker B:And so you actually create a trust that means that the trustee is responsible for managing the car, and essentially he ensures that your son doesn't sell it the next day.
Speaker A:There's quite an onerous responsibility on my wife now, who knows nothing about cars, to actually look after this vehicle.
Speaker A:And she might not know.
Speaker A:You know, you get sort of thrust into the job of trustee, don't you?
Speaker A:It's generally not paid, is it?
Speaker A:Or it can't be paid.
Speaker C:Well, you can have corporate kind of professional trustees and you can have lay trustees, and people will pick different types of trustee for the situation.
Speaker C:But obviously professional trustees will want to get paid for that role, undoubtedly, because it takes a lot of legal, you know, you're taking on legal responsibility as a trustee to look after those assets, as the trust deed says.
Speaker C:And under general legal principles, there's quite a lot of onus on you to manage that trust correctly.
Speaker A:Another great way that someone put it to me, I think my dad said to me many years ago, is when you set up a trust, it's like throwing a ball.
Speaker A:If the ball was the Ford Mustang or the ball is a bunch of money you have, you can aim it.
Speaker A:He was sort of.
Speaker A:His analogy is, you know, you can aim that.
Speaker A:I want this to be for my grandchildren.
Speaker A:And you can create a sort of.
Speaker A:The trajectory of the trust is supposed to do that.
Speaker A:And then the trustees almost, I think of them like, you know, those sweepers.
Speaker C:Curling, curling.
Speaker A:They're like, well, maybe the curling's the best.
Speaker A:You've curled this thing and then you've got these trustees trying to.
Speaker C:Trying to get it to its final.
Speaker A:Destination place and keep it in order.
Speaker A:And then effectively it effectively ends up at this destination that you've aimed for, that I want to pay for my grandchildren's education or whatever, you know, as a sort of classic thing.
Speaker A:And, you know, it is, you know, quite a responsibility on the.
Speaker A:On the trustees that they can't just sort of go and waste the money or, you know, forget that we, you know, sell the Ford Mustang for another Ford Mustang or whatever.
Speaker A:So sort of understanding a principle there that this isn't, you know, I think people think trusts equals tax.
Speaker A:Actually trusts equal you trying to do something with some of your assets for long term, perhaps for the benefit of others.
Speaker C:When an outright G isn't appropriate for whatever reason, then the trust is normally.
Speaker A:Where you would look like, I don't want my son to sell my Ford Mustang.
Speaker A:I want my son to have enough money to educate his kids.
Speaker A:If I was very wealthy or something, so.
Speaker A:But if I give him a million.
Speaker C:Quid and he might spend it on himself and not on the grandchildren, on.
Speaker A:24 mustangs or drugs or God only knows, you know, and there we go, you know, life could happen, isn't it?
Speaker B:And the trustees always, always manage those assets for the beneficiaries.
Speaker B:That's the point.
Speaker B:You've given it away.
Speaker B:The trustees are managing the assets for the benefit of the beneficiaries.
Speaker B:And if you are not among that list of beneficiaries and for tax purposes, you generally aren't nowadays, but then you have to accept that this is not your asset anymore, but it is protected.
Speaker A:You could be a settlor, a trustee and a beneficiary.
Speaker C:You could.
Speaker C:But if you were a beneficiary, you get into settler interested tax rules.
Speaker C:So if, and obviously now we're saying people don't set them up for tax reasons, that's a disaster.
Speaker C:For tax reasons.
Speaker C:Any tax planning you're doing, if you're the SEC law and can benefit my.
Speaker A:Awareness of what is useful these days as a UK citizen, let's just deal with the UK first.
Speaker A:When do I think about using a trust?
Speaker A:Now, in my head, there are really two uses that crop up in my mind.
Speaker A:It's like, well, three, I would say one is the Bear Trust, the most basic type of trust where you effectively Bear trust is the same as a nominee trust.
Speaker A:You're effectively saying, I do own this Ford Mustang, but I want you publicly to be the owner.
Speaker A:Is that.
Speaker A:Or how would you describe a Bear Trust or a nominee trust?
Speaker C:I think just as you've described it, and it used to be to hide the real beneficial owner because the legal owner would be the person to the outside public that looks like they own these shares, but the beneficial owner is someone different.
Speaker A:And someone may say, oh, they're trying to avoid tax.
Speaker A:I mean, maybe they are.
Speaker C:There's no.
Speaker C:If you've got a bare trust, it's irrelevant broadly for tax.
Speaker A:No, but it's in people sit.
Speaker A:Well, why are they trying to hide their identity?
Speaker A:Actually, there's lots of good reasons.
Speaker C:Privacy reasons.
Speaker A:I see one, you are building a competitive business and you don't want people to know.
Speaker A:Like a guy I knew who was like a leader in this field, he set up a New company.
Speaker A:And he was like, if anyone finds, sees this on company's house, they're going to know what I'm up to.
Speaker A:I need to get my name away from it.
Speaker A:You know, a competitive disadvantage.
Speaker C:It's still a very legitimate way of doing things.
Speaker C:We touched on it a bit before about the trust register and that is now something that is in place.
Speaker C:So if you have a trust, even a bear trust in that situation will likely need registering with hmrc.
Speaker C:So HMRC will be aware of the real ownership of those shares.
Speaker C:Now, at the moment, that trust register is not publicly available.
Speaker C:There was some chat that it would be made publicly available.
Speaker C:I haven't heard anything about it recently, so that's very much on the back burner.
Speaker C:It could happen, but it's, it's not currently there, so that would still work.
Speaker A:And HMRC obviously wanted to know this because it would rather get upset that it would think one person owns it and someone pull a piece of paper out of a drawer and say, well, no, they don't.
Speaker C:Well, because if that was an income producing asset, the income would be the beneficial owners, so they would report.
Speaker C:So if there were dividends paid on that share, the beneficial owner reports the dividends.
Speaker A:Let's just do that slowly.
Speaker A:So I own shares in BP and.
Speaker C:If I held them on your behalf.
Speaker A:Yeah, I give them to my, my friend, my wife and I say, you're going to be the publicly listed owner of these shares, then those shares receive a million pounds in dividends.
Speaker A:I'm just making up silly numbers.
Speaker A:As far as HMRC knows, we've got to tax that person.
Speaker C:Yes, but then you put the dividends on your tax return and that causes confusion and inquir and so, yes, so.
Speaker A:You'Ve got a Bear Trust now, you know, we could give you various examples, but it does come up in life and I would add, due to the persons of significant control Register on Companies House.
Speaker A:You know, the UK has some of the most transparent legislation in the world.
Speaker A:You know, it is incredibly aggressive on.
Speaker A:I mean, aggressive is the wrong word.
Speaker A:It is.
Speaker A:The principles of our system rely on quite a lot of transparency.
Speaker A:I mean, it's always, you know, the whole concept of really, you know, of a limited company is, yes, I'm limited, but you know, who I am and what my balance sheet is, you know, on public record.
Speaker A:The company's house has sort of quite strong requirements.
Speaker A:So trying to hide yourself from actually being the owner of a company is actually really hard.
Speaker A:In the uk, I would say we've now got the trust Register with hmrc, but without a doubt and they are usually for very boring reasons.
Speaker A:The concept of a nominee or a bear trust is a common thing and you do it for various reasons at certain points.
Speaker A:The second use that I'm aware of that is, you know, maybe we'll talk about more, but I'll just give a very, very simple vers which is that you can take £325,000 every seven years of your assets and put them into trust in a fairly tax efficient manner for say, your kids.
Speaker A:So is say, do an easy example.
Speaker A:You happen to have a property worth £300,000.
Speaker A:You could say I own this, but I tell you what, and assuming there was no mortgage and I just own this property outright because there are multiple taxes, by the way, whenever you're considering anything going into trust, you've got capital gains, you've got stamp duty and you've got inheritance tax to consider.
Speaker A:There are, you know, don't worry, the UK tax system will get its pound of flesh one way or another.
Speaker A:But due to all the way these things work, you, you can put an asset of £300,000 into trust and provided you lived seven years, say for your kids, you say, you take a house, put it in in seven years time, you could do it again and live another seven years.
Speaker A:And in theory, if you lived a reasonable period, you could probably put this lump in four or five times.
Speaker C:Yeah.
Speaker C:And if, you know, if you're a couple, you both can.
Speaker C:So husband and wife can.
Speaker A:And that is not, not to be sniffed at.
Speaker A:It's a useful thing.
Speaker A:And actually if you think about it, it's quite measured.
Speaker A:It's not millions of pounds, is it?
Speaker A:You know, I mean, I know £325,000 is a lot to some people and absolutely fair enough, but we're talking about, you know, professional fees, setting up trusts.
Speaker A:I mean, you're not going to start fiddling around with this stuff.
Speaker C:There's going to be a lot of admin that goes along with admin.
Speaker A:I mean you're going to be, you're gonna be paying £10,000 to sort it all out or something.
Speaker A:So, you know, you're not going to be muckered around with this stuff.
Speaker A:If you just got 20 grand that you want to give to your kid, just, you know, find another way, give it, give it to an uncle and tell them to give it to them on their 21st birthday.
Speaker C:I mean there's, you know, which is creating a trust.
Speaker A:But anyway, actually great point, isn't it?
Speaker A:But yeah, you wouldn't have it, you just wouldn't bother with it professionals.
Speaker A:But there is, that is a tax efficient thing, you know, without a doubt.
Speaker A:If you don't do it and you've got that kind of asset, you could go get some advice and just say look I'd like to do one of these, you know, I call it a 325 trust.
Speaker A: mean when I mean like before: Speaker A:Now they almost don't exist in our.
Speaker C: hat I think the old style pre: Speaker C:And I think that's where a lot of the perception has come from.
Speaker C:Over the time since then these rules have changed quite significantly and, and the times that you can use it to save tax, there are some, but they are definitely eroded.
Speaker A:The other one I think of, I remember being taught at school, which I think is still in tax school, was trust on death, isn't it?
Speaker C:Yeah, death.
Speaker A:The traditional deathbed planning trust in your will.
Speaker C:Oh I see, yeah.
Speaker C:Post death.
Speaker A:Yeah, yeah, yeah.
Speaker A:Because what happens with trust is you get a 10 year tax charge, you get taxes when it goes in, you get taxes when it comes out.
Speaker A:You know, you've got administration costs, you need trustees.
Speaker A:I mean the thing, you know, to Jeremy's point, I think it's a great point, like if you're going into this to save some tax, you're probably a not going to save any tax.
Speaker A:You're going to have a lot of admin and stress about it all.
Speaker A:You need to do it because you really want to pay for your grandchildren's education.
Speaker C:And also if you do find that situation where it can be used, do think carefully because the rules can change and the rules have just changed outside probably the scope of this.
Speaker C:But it's getting people who thought they were, you know, high and dry and safe and it is now getting people.
Speaker A:So well, you've thrown the ball, throwing.
Speaker C:The ball and you're no longer in control of it.
Speaker C:That is the whole purpose of these setups is once you've thrown that ball, that's not your asset anymore.
Speaker B:And to address the point that you mentioned earlier, Andy, as in with a 325, that's the nil rate band, the.
Speaker A:Inheritance tax nil rate band, inheritance tax nil rate ban.
Speaker B:And so everybody has a nil rate ban.
Speaker A:You have one for income, you can earn up to about 13 grand tax free and you have one in most taxes allow a little bit, you know, and this is for inheritance tax purposes.
Speaker A:You have £325,000.
Speaker A:If you died tomorrow, that won't be taxed under inheritance tax.
Speaker A:If you were on your own single individual.
Speaker A:So you use up this band.
Speaker B:That's correct.
Speaker B:And essentially the way the laws work, like you said, as in to the extent you have the ability to use it in your lifetime, then you can use it like every seven years, it refreshes every seven years.
Speaker B:And just the reason I was mentioning that is you mentioned earlier on about like, you know, leaving stuff in wills and trusts in wills and Emma's point on the laws will change.
Speaker B:Many people will have set up what they think are tax efficient wills because the kind of trust that they decided they wanted to set up at the time would have worked for those purposes.
Speaker B:And what everybody needs to do is to step back and look at their wills again.
Speaker B:And if their wills say, I'm going to set up a trust for X or trust for Y, they need to look and make sure that those trusts still work the way they thought they would work because it is possible that they won't.
Speaker B:And if they won't, then, well, you'll be gone, quite frankly.
Speaker B:But your kids might not love you.
Speaker A:As much as, you know, effectively.
Speaker A:It is a highly complex area.
Speaker A:I mean, of all subjects as tax advisors, we know the moment was like, oh, it's all going very well, this meeting.
Speaker A:And then someone mentions the trust and you're like, sorry, what was that about?
Speaker C:Got to start the meeting again.
Speaker A:Oh, it's nothing.
Speaker A:Oh, it's nothing.
Speaker A:I was just, you know, this might grandfather set up some old trust.
Speaker A:I mean, whoa, whoa, whoa, whoa, whoa, whoa, whoa.
Speaker A:You know, like, forget everything we've now discussed, give me a copy of this trustee, like that's going to cost 70% of your fees now.
Speaker A:While we try and wrap our head around.
Speaker A:And then they're like, oh no, but don't worry, it's not a UK trust, it's from overseas.
Speaker A:And I remember you showing me because you said you on HMRC's website, I don't know if it's still there.
Speaker A:You could look up overseas trust and it said, this is the most complicated area of tax is what it is.
Speaker C:That's how I saw all my emails.
Speaker A:Whether it is fiendishly complicated.
Speaker A:And so therefore, you know, again, you need a clear and good motivation.
Speaker A:You know, it's a totally valid motivation to say, I want my grandchildren to have health and education or whatever it is, whatever your thing you're passionate about, fair enough.
Speaker A:If you care about that and you want to do it, it can be done, but it's not going to be efficient, necessary or save you lots of fees.
Speaker A:But you could do something and like you say, it's after you're gone, you know, it's something I'm not going to be around.
Speaker A:I'm 75 or, you know, I'm worried about what happens to you.
Speaker A:I, I just, I want to create some mechanism that, you know, passes this, this money I've accumulated down to help people.
Speaker A:I mean, that's the other thing with trust.
Speaker A:You, you, it's the way that you can say, I don't want people just blowing on everything.
Speaker A:I don't want my kids to be bums or their kids to be bums just because I've given them lots of money.
Speaker A:But I do want to help them with health and education.
Speaker A:I do want to help them with problems.
Speaker A:So you get those sort of.
Speaker A:You know, I always think of the Colombo movies when they're trying to break the trust because, you know, it's been set up to look after something and it'll have special conditions in it, you know, to say, when can you access, you know, you've got an emergency and.
Speaker C:Then that the legal onus is then on the trustees to do that.
Speaker C:So as the beneficiary, you can't just go knocking and say, I want this because I want to go on holiday.
Speaker C:If you've got a professional trustee, they're very likely to say no to that request.
Speaker C:And I have seen that quite regularly where people go, oh, just ask the trustees for this money.
Speaker C:And the trustees say no, because there are specific reasons for capital predominantly to be paid out of trust.
Speaker C:And if it's not one of them.
Speaker A:Let's just take a moment.
Speaker A:Globally, in Europe, Europe, the concept of trust often doesn't exist.
Speaker A:They have no legal concept of it.
Speaker A:They clearly didn't have the same problem in the Crusades or whatever.
Speaker A:You know, there are countries, obviously British, Anglo sphere, common law countries, therefore you have this concept of trust.
Speaker A:But, you know, for a starter, when you go globally, they may not even have a concept for it or they may have completely different types of trusts.
Speaker A:You know, our Australian friends or, you know, use this family trust thing is, you know, absolutely, absolutely standard in, in Australia.
Speaker A:But in the uk, we tend to think about them as really a discretionary trust and what an interest in possession.
Speaker A:I mean, and broadly, those are the, Those are your two options?
Speaker C:They are now, yeah.
Speaker C:Those are you too, yeah.
Speaker A:And then how would you.
Speaker A:How would you describe one or the other?
Speaker A:What would be a good way of just.
Speaker A:Without getting.
Speaker A:We don't.
Speaker A:Honestly, if you're gonna.
Speaker A:If you.
Speaker A:If.
Speaker A:I think the right thing to think about is if you want to do something, go and talk to a professional advisor about.
Speaker A:I would like this asset to be for the benefit of this thing over here, you know, but just understanding there are sort of two main types.
Speaker A:How would you describe them?
Speaker C:Well, the easiest one to identify is the interest in possession, I guess.
Speaker C:And if the beneficiary is entitled to the income within the trust as it arises, you have an interest in possession.
Speaker A:So wait a second.
Speaker A:So that is, I have a property that is rented out and it's getting £2,000amonth in income.
Speaker A:I'm now going to say that this is my son's property.
Speaker C:If he has the right to that income, that rental income as it accrues.
Speaker C:Accrues.
Speaker C:That is an interesting possession.
Speaker B:Not your son's property.
Speaker B:It's the trust's property.
Speaker A:It's the trust property.
Speaker A:So he.
Speaker A:Is he the beneficiary?
Speaker C:He's the beneficiary, yep.
Speaker A:But he's the beneficiary of the income and the property.
Speaker A:Ultimately, no.
Speaker B:The income, the property could go somewhere else.
Speaker B:It really is up to you.
Speaker A:And these are terms, look for tax and accountant people.
Speaker A:We use them constantly.
Speaker A:They're absolute backbone of capital versus income.
Speaker A:And I see my friends staring blankly at me when I say something like that.
Speaker A:But, you know, effectively income is salary or dividends or interest.
Speaker A:It is earnings of some kind.
Speaker A:And capital is effectively an asset.
Speaker A:You know, in terms of.
Speaker A:It's cash, it's bitcoin, it's a building.
Speaker A:These things are all ultimately capital.
Speaker A:Is that.
Speaker A:I mean, I don't know what the statute is.
Speaker B:In your example.
Speaker B:The capital is the property.
Speaker B:It's the property and the income is the rent.
Speaker A:Yeah, exactly.
Speaker A:Perfect.
Speaker A:So you can say to someone, look, the property will never be yours, but for you and your children, and your children's children, and your children's children's children, as they say, I'm on to buy.
Speaker A:You know, you can have access to this income stream and that can keep you happy and well, and do whatever you want with it or whatever the trustee says, you could say whatever you want, really.
Speaker B:I think the fine point and the interesting possession that Emma was mentioning is whether or not the income is paid out to you, you are entitled to that income as it arises.
Speaker A:As it arises.
Speaker A:It is by definition yours.
Speaker A:And it goes on your tax return.
Speaker A:Yeah.
Speaker C:Normally the trustees might pay it out once a quarter or sometimes even annually, but that is the point, that that income is the beneficiary when it arises and then you've got an interest in possession and quite broadly, if you haven't got that, you've probably got a discretionary trust.
Speaker A:And a discretionary trust is what people would understand of a normal trust.
Speaker A:There's trustees, they have assets that they can look after and they can decide at their discretion when you get some of it.
Speaker C:Exactly.
Speaker C:And they can decide which beneficiaries get what amount of income and when or capital either.
Speaker A:But there's quite a lot of protection around.
Speaker A:Usually the trust is trying to protect the capital, isn't it?
Speaker A:Preserve the capital, traditionally speaking.
Speaker C:And now a quick word from our.
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Speaker A:We're pretty much on all of them.
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Speaker A:So effectively, if I was to summarize if you are a UK citizen, well, forget about being a citizen.
Speaker A:If you live in this country 90% of the time or whatever, most of the time you are what we would call a UK tax resident.
Speaker A:Long term you don't have any plans of leaving, particularly this is where your life and your family is, is then the use of trust is not something you should completely ignore, you know, but really when you get down to it, there are relatively limited uses that would probably be attracted to, attractive to you.
Speaker A:Or maybe I'm saying that wrong.
Speaker A:I mean maybe it's more like you need, you need something that you're really trying to achieve for you, for, for, you know, you've got some money, you.
Speaker C:Know, your three to five trust every seven years, there are some standard ones like that that's will come into kind of good estate planning.
Speaker C: But yes, I think pre: Speaker C:And now that those have stopped, it is far more about asset protection and making sure your assets stay intact.
Speaker C:Say for example, if you've got a family business and you've got three children, do you want those shares to be owned by the trust or do you want them effectively to split the holding between three of them?
Speaker C:I think it's those more kind of practical points that are why people prepared or at least look at getting Trusts in place now.
Speaker A:Yeah.
Speaker A:And I think just to put a pin in, another thing that often rolls around people's heads is they think, yeah, but why don't I go do it offshore?
Speaker A:You know, I mean, I could go to Bermuda or I can go to Jersey and set up a trust.
Speaker A:It's all about trusts over there.
Speaker A:Brilliant.
Speaker A:You know, why aren't I doing that?
Speaker A:And I think just to put a pin in that again, if you live in this country most of the time, other than when you go on holiday, but you're here, you know, 183 days a year or more, and this is where you pay and don't plan on turning that.
Speaker A:There are a lot of laws to, you know, well, there's movement of assets abroad, there's control foreign companies.
Speaker A:You cannot take a lump of money from the UK and stick it in Jersey in a trust and get it out of tax.
Speaker A:Life is not at all that simple.
Speaker A:If you walk through the door today and said, I've got £10 million, I want to get it out of the UK, I don't want to pay any tax on it, you know, I want to have some offshore efficient thing.
Speaker A:I mean, you know, we would just be like, well, are you going to leave this country?
Speaker A:No, I'm not going to leave this country.
Speaker A:Well, kind of forget about it.
Speaker A:I think it would be my rough.
Speaker C:Conclusion and I think the confusion with many comes with if you had someone previously who wasn't domiciled, so the UK wasn't their long term home before they came to the UK or indeed once they were in the uk, before they become what we call deemed domiciled, when.
Speaker A:They were foreigners, before they entered, before.
Speaker C:They'D been here long enough to be considered, you know, part of the UK long term tax system, then they could put foreign assets into a trust and protect them.
Speaker C:So people legitimately could do that, but they were foreign assets and at that point they were deemed to be a foreign person.
Speaker C:So HMRC couldn't have access to tax on those assets.
Speaker C:So I think that's the differential.
Speaker A:Let's go there.
Speaker A:Yeah.
Speaker A:Cause the other one someone said to me when I was having this debate last was oh yeah, but David Cameron's dad did it.
Speaker A: s dad may have done it in the: Speaker A:And yeah, you may be fortun that your grandfather set something off offshore, but.
Speaker C:But as A beneficiary in the uk, you're still going to be taxed on that.
Speaker A:Anything that turns up here, just to cheer anyone up who thinks it's unfair, you know, these rich people are all getting away with it and I can't afford the professional.
Speaker A:Any money that they come and spend here is going to be taxed.
Speaker C:The crap, bring it into the uk, you're taxed, you're taxed.
Speaker A:Yeah, but then you mentioned a very important one called an excluded property trust.
Speaker A:So for a long time, if I was a foreigner, now please remember this is a foreigner, this is not a British person.
Speaker A:They are not part of our taxes, part of another country which has its own tax system.
Speaker A:Stop feeling that everybody who should step off the boat should somehow be patriotic and paying all their taxes.
Speaker A:It's not how tax works.
Speaker A:Yeah, tax is a global competition between countries and frankly there are a lot of countries, a lot more attractive tax systems than us who have got much better weather.
Speaker A:You know, it is a global competition.
Speaker A:So, you know, effectively, as they enter the UK system, do not worry, we will get our teeth fully into them if they mad enough to decide to stay in this country, you know, maybe with the current weather, but as a foreigner before they entered the uk, so they could avoid certain things like inheritance tax, which I would like to remind everyone is incredibly rare.
Speaker A:Globally, there's only 17 countries with inheritance tax.
Speaker A:It's not a common tax.
Speaker A:They're probably coming from a country which doesn't have inheritance tax.
Speaker A:You tell someone who comes from a country that doesn't have inheritance tax, by the way, if you live in the UK, we're going to tax 40% of all you earn when you die or all you own.
Speaker A:It's not quite a big deal.
Speaker A:So what could be people do, they could set up a trust in an offshore territory, meaning somewhere not in the uk, generally in a low tax place, and they could put in that all of their foreign assets.
Speaker A:Not British property, not British assets.
Speaker A:They could put all their foreign stuff into this thing.
Speaker A:Is that fair?
Speaker A:And now it's not, it's gone.
Speaker C:Well, the new rules are now attacking that and making that far less advantageous.
Speaker C:And if you are the person who has settled that trust, that was previously an excluded property trust and you are now in the UK long term resident, a lot of the tax protections from that trust have gone because you're now uk, you're long term.
Speaker C:So they're not getting the benefits, just like any other UK person wouldn't have access to those benefits.
Speaker A:And there's a lot of paper on this table right now because Jeremy and Emma effectively are probably worried I'm going to ask them some really difficult questions because these rules are new.
Speaker A:Every trust is different.
Speaker A:Working out which of these trusts are now affected is incredibly complicated.
Speaker C:I think one of the things we haven't touched on up until now as well is the tax treatment of interest in possession and discretionary trusts is totally different.
Speaker C:So when we're talking about trusts, you know, you feel like as an advisor you're banging on what type of trust is it?
Speaker C:And people aren't, they don't, they don't understand the differences.
Speaker C:Like it's a trust, it's a trust.
Speaker C:But that to us as tax advisers makes a huge difference to how it is taxed.
Speaker C:And they are almost two totally separate tax regimes.
Speaker C:So looking at these new rules, you've got whether the trust is resident, whether the settlor is resident, whether the beneficiaries are resident.
Speaker C:What type of trust is it?
Speaker C:Is it a settlor interested trust?
Speaker C:How long have you been in the uk?
Speaker C:It is an every single combination of those factors will give you a different answer.
Speaker C:So there is absolutely no quick way to finding the answer to that.
Speaker A:Yeah.
Speaker A:Because what we're talking about out there, Emma, is these trusts, by definition of foreign trusts.
Speaker C:Yeah.
Speaker A:So therefore this is what's so difficult for tax advisors is that cross border tax is not twice as complicated, it's 100 times as complicated because you have a set of law, a set of rules, you have semantics of language, how it's developed in a country.
Speaker A:Then you have another country who's done their own thing for a couple hundred years or thousand years, whatever's been going on.
Speaker A:And then they've got this thing that they school a trust and it functions in a way that's totally different to how we function.
Speaker A:And then we have the job.
Speaker A:Like trying to put together, it's like trying to put together diplo Lego and normal Lego.
Speaker A:I mean it's worse than that.
Speaker A:It's like trying to put together like what's the, what's the metal one?
Speaker A:Meccano.
Speaker A:It's like J.
Speaker C:It is.
Speaker C:It's like someone's giving a child a box of both clients and watch their.
Speaker A:Head and you're building Lego and they're.
Speaker C:Like, yeah, yeah, just add this in.
Speaker C:Just add this in.
Speaker C:Yes, which one is it?
Speaker A:And you have to kind of get them into shapes and sort of go, well.
Speaker C:But it's most like this one.
Speaker A:This one now looks a bit like my LEGO car.
Speaker C:So we're gonna assume they're the same.
Speaker C:Yes, that is a hundred percent what it is.
Speaker C:And these different jurisdictions have their own, you know, just like we have interests in possession and discretionary Traffic trust and Bear trust and old style A and M trust.
Speaker C:Those are really that.
Speaker C:That's our gamut of trusts and we know what we're doing with those.
Speaker C:And then someone comes along and says, oh, I've got a living trust from the us.
Speaker C:And you're like, well, we don't have that.
Speaker C:So you've got to look at it and go, under our rules, what is it closest to?
Speaker C:Is it closest to this type of trust or is it closest to this type of trust?
Speaker C:There's very little case law and any of this stuff, they go, well, you.
Speaker A:Know, I need an answer, I've got to do my tax return or whatever.
Speaker A:And you're like, because in the US.
Speaker C:There is an answer because they know how they deal with those trusts.
Speaker A:Yeah, but you could say, great, we'll go to the top barrister in the UK and we're going to pay him £20,000 and see what they think.
Speaker A:And you will get a report back that says, I think probably, yes, yes.
Speaker C:Because there is no, there is no certainty because we don't have that type of trust as a construct in the uk.
Speaker C:We're trying to fit that trust into that round trust into our square holes.
Speaker A:HMRC in the background, who will, I'm sorry, hmrc, likely take whatever is the most negative position from your point of view and try and argue it.
Speaker A:So I E. If you've decided it's a car and that would be a good outcome for you, you know, they'll probably come along and say, I think it's a truck.
Speaker A:And when it's a truck, that's not such a good outcome.
Speaker A:And you say, well, I've got this report from, you know, this qc.
Speaker A:And they were like, yeah, well, very nice.
Speaker A:We don't agree, we don't agree.
Speaker A:What are you going to do about it?
Speaker A:You know, and you're like, well, I don't know, go to tribunal and have an argument in a court for £100,000.
Speaker A:So, you know, they' to collect taxes, they're not there to be, oh, yeah, fine, it's one of them.
Speaker A:You know, I'm sure you can get a nice inspector and stuff and maybe that'll happen.
Speaker A:But in the job of the professional, when the client's then saying, well, I need to be sure, you know, how do I be sure?
Speaker A:It's like, you can't can't.
Speaker A:Basically, you can't be with these.
Speaker A:Just take a good guess and make sure you've taken that advice.
Speaker A:If it's a lot of money, make sure you've gone and got the good barrister's opinion.
Speaker A:Make sure you, you know, you can put on the table a lot of stuff.
Speaker A:When HMRC come along and say, well, I asked Jeremy Coker and he's no idiot, and I went to a barrister and they weren't an idiot and they both said, probably it's a car.
Speaker A:So, you know, so we've treated it.
Speaker C:Like a car and we've disclosed that we've treated it like a car.
Speaker C:And that's the best you can do not.
Speaker B:Not to kick hmrc.
Speaker B:And I wouldn't say that they are my best friends because we're always on the opposite side of the table.
Speaker B:But at the end.
Speaker B:But at the end of the day, we're trying to just make sure the right amount of tax is paid.
Speaker B:And the rules have just developed because there has always been a criminal element that has tried to, like, take advantage of the system.
Speaker B:But sadly, the laws that have come into trouble try and stop the mischief that is being created are just complicated.
Speaker B:And in trying to make sure that the mischief cannot be continued or magnified, complications have been imposed upon complicated stuff.
Speaker B:And so we just have absolutely tortuous legislation at this point in time.
Speaker B:And that's what makes offshore trusts an absolute, absolute nightmare.
Speaker A:Well, you made a really good point.
Speaker A:Unfortunately, we constantly live in a world where the 1% criminal element, probably 0.1% criminal element, take these things and abuse them.
Speaker A:You know, a scheme of arrangements for the main purposes of avoiding tax, which is illegal in this country, you know, under guard generally, Anton avoidance.
Speaker A:But, you know, if you want to start doing some sexy tax planning and coming up, some really clever stuff, a trust is quite a useful tool to start saying, oh, I'll tell you what we'll do, we'll give it to them and then we're going, anything you do like that is actually illegal.
Speaker A:If you're doing it to avoid tax, you know, if you're doing it because that's the only way you can get the money to that grandchild in that country or something.
Speaker A:Fair enough.
Speaker A:But if you're doing it it to avoid tax, it's illegal.
Speaker A:I mean, there's some people knocking around on TikTok that we were looking at, and I think you should be quite, quite skeptical and quite cautious.
Speaker A:Trusts are very complicated, so you're not supposed to really understand Them.
Speaker A:But you should, I think at a base level have an understand.
Speaker A:You know, if you see that, it just sounds so com.
Speaker A:It just.
Speaker C:I think a lot of times people just hear the word trust and already it's elevated.
Speaker C:That advice, I mean people come to you and go, well, would a trust work?
Speaker C:And it's a situation that trust would never, ever, ever work.
Speaker C:But in their mind their trust is that kind of, you know, silver bullets like to, oh, my tax will go away if I've put everything into a trust.
Speaker C:And I think they're an unknown and I'm not surprised they are because there's no register like companies house.
Speaker C:The language is quite archaic, it's quite elitist.
Speaker C:If you don't understand the language, you haven't got a clue.
Speaker C:I mean, I read these trustees and honestly I could put a summary of what they say in a page and they're 30 pages long.
Speaker C:The language used is very like.
Speaker C:Yeah.
Speaker C:And it's just a real barrier to entry and understanding, I think a lot of the time.
Speaker C:And you've got all, all these different tax regimes so you're thinking you're looking at a trust and one trust is taxed like this and then a different trust is taxed like that and there'll be very good reasons why it's different.
Speaker C:But all of those create a real barrier to entry.
Speaker C:And I think they're very cloud like they're hard to pin down sometimes.
Speaker C:And I think all of that creates this illusion that they're like a magic box.
Speaker C:And what's going on behind, you know, what's going on in that trustee that allows me to.
Speaker A:You can save a lot of tax.
Speaker A:So.
Speaker A:And comes up with a.
Speaker A:Comes up with a complicated scheme and it's not the 3:2,5 trust, which by the way is pretty simple.
Speaker C:Yeah.
Speaker A:Single documents like, I'm going to give that amount of money to my son.
Speaker A:Great.
Speaker B:To the trust.
Speaker B:To the trust.
Speaker C:Sorry.
Speaker A:Thank you.
Speaker A:Thank you.
Speaker A:D. But I think the other one we were talking about the other day, which is happens is because I had a guy ring me about this just the other day and ask, no, if you're struggling with private school fees, you can't take your money and stick it into trust for your kids to pay their school fees.
Speaker A:That doesn't work.
Speaker C:But if you're a grandparent, if you're.
Speaker A:A grandparent, you can.
Speaker A:So if your grandparents and you can't.
Speaker A:Can't take money and sort of give it to your grandparents to give back again, scheme of arrangements for the main purposes, avoiding Tax.
Speaker A:If your grandparent is wealthy and wishes to pay for their grandchildren's education, then yes, you could set up a trust to do that.
Speaker A:And that is a legitimate use and an unstable use.
Speaker A:And it's, you know, people think, well, what's the difference where it's my son, why can my grandparent do it?
Speaker A:It's like, look, tax works on a kind of level of where, where the lines are, you know, what, what behavior do we think is not okay and what behave because there's a bit of distance between you grandchildren.
Speaker A:I think it's sort of that.
Speaker C:Well, I think the one, those examples you've shown actually can be set up really pretty simply.
Speaker C:They're not complicated.
Speaker C:And a lot of times when people come, they say, well, I've had this advice and it's, you've got this trust, you've got this company, you've got this LLP and you've got this massive structure.
Speaker C:Money's going here, money's going there, and you're just thinking that's contrived.
Speaker C:And once you get into that territory, I think it's, I think the one.
Speaker B:Line is, please don't take your tax advice from social media.
Speaker C:Yes, please come to Jeremy.
Speaker A:Plus, if you ask, if you are, if they're trying to be too clever, I use the phrase don't be stupid with tax, but don't be too clever.
Speaker A:It's like there's a middle ground and we do it as advisors all the time.
Speaker A:The ways you use trust, if you're going to use them, they're tried and tested, they're understood by the revenue.
Speaker A:They're something anyone could talk about publicly.
Speaker A:Explain to the revenue, explain to whoever, you know, we are using it in the correct manner for the correct reasons.
Speaker A:We have people wondering this a week you know, sometimes, and they're professional organizations.
Speaker A:I haven't seen this in a while.
Speaker A:But, you know, you'll get someone who'll come in and pitch us something and say, tell we've got this great thing, da, da, da, da, da.
Speaker A:And you sit there and we all just look at each other and we're just like a.
Speaker A:We don't fully understand it, but actually that's the indication that we're like sitting there going, what is this?
Speaker A:This is just some nonsense.
Speaker A:And always ask yourself the purpose, you know, if it's complicated, why is it complicated?
Speaker A:If it is complicated to avoid tax, it's illegal, you know, it's not allowed.
Speaker A:You will not stand on two legs, you know, however, if it's for commercial Special reasons, you know, if there are real legitimate reasons why you really need to do this thing.
Speaker A:Well, okay, maybe let's, let's think about it, you know, maybe let's say.
Speaker A:But too complicated.
Speaker A:I mean the administration is going to be hard.
Speaker A:Nobody's going to understand it anyway.
Speaker A:I mean these things always fall apart, don't they?
Speaker A:You know, whether you had the film.
Speaker A:What was the film one.
Speaker A:I mean, genius.
Speaker A:That was LLPs and stuff.
Speaker A:But you know, anytime.
Speaker A:It's too.
Speaker C:It's too good to be true.
Speaker A:Yeah.
Speaker A:You know.
Speaker C:Yeah.
Speaker A:I mean, and that look to reassure you if you're a UK person, how whether you're or broke, everyone is paying a lot of tax and you.
Speaker A:There aren't any real crazy good tricks out there, you know, there are, there are some things you can do like put money in your pension, invest in risky companies, put a bit of money into trust every seven years.
Speaker A:You know, there's quite a small list of things that you could potentially do legitimately, legit, legitimately, that may be enough in terms of, you know, not wanting to overload an audience with information and like, you know.
Speaker A:So anything else?
Speaker A:What else do you.
Speaker A:Anything else?
Speaker C:What we're seeing a lot with a lot of our clients who are coming from the US is that they have these living trusts and that's become an increasing.
Speaker A:What is a living trust, roughly?
Speaker C:Well, it's a US construct where if US based individuals, they put all of their assets into living trusts so that the trust is the owner, not them.
Speaker C:And it avoids quite a costly, lengthy probate procedure on their death.
Speaker A:What happens on death?
Speaker C:Yeah, as far as I understand it, it doesn't save any tax.
Speaker C:It's not done as a tax point at all in the.
Speaker C:It is purely to avoid the probate and to get assets out on debt to beneficiaries quicker and cheaper.
Speaker A:Probate's the sort of.
Speaker A:It's when you die, you have probate.
Speaker A:Can you describe it there?
Speaker C:It's the legal transfer of assets, isn't it?
Speaker C:Yeah.
Speaker B:You realise the assets in the estate and make sure they end up somewhere.
Speaker A:Someone dies, they have bank accounts, they have assets and then there is a.
Speaker A:Based on what the will says, I guess there's an executor who gets sort of appointed in charge of this estate.
Speaker C:And then the assets are collected and distributed, your inheritance tax paid.
Speaker C:But it's avoids that process in the US and assets can get distributed to beneficiaries much quicker.
Speaker C:And I've been told recently that the probate records are all public in the us, so avoiding probate.
Speaker C:There's a privacy point as well, and it's very commonplace.
Speaker C:It's almost as commonplace as you or I having a will in the uk, it is absolutely bog standard estate planning in the us, but it is done for the purposes of US rules and with just the US in mind.
Speaker C:And these people that have set up these trusts then come to the UK and there are sometimes some pretty severe consequences of having that trust there.
Speaker C:So we're seeing that a lot because in their mind it almost doesn't exist.
Speaker C:They set it up, they forget about it and then they come to the UK and actually what they have is an overseas trust and that is back into the realms of all the complicated things we talked about earlier.
Speaker C:So that's something that we're seeing very, very frequently at the moment.
Speaker A:If you're a UK person, you've got some dear old granny or uncle or someone who very kindly tried to set up an overseas trust.
Speaker A:I'm sure they were trying to do a nice thing.
Speaker A:But, you know, the administration is these.
Speaker C:US ones, it's the people that are coming to the UK are the ones that have set it up and they've not set it up for any tax avoidance in any way.
Speaker C:And because it's so commonplace in the US and is really transparent for tax in the us, it's not even on their mind.
Speaker C:And they step foot in the uk, they create UK tax residency and that is a.
Speaker C:That is then a problem and then.
Speaker A:Good luck, you know, as in, you've got to work out whether it fits in one box or the other.
Speaker A:Is it a of couple, a car or a truck?
Speaker A:I mean, the other one, that's very common amongst our clients with our Australasian buddies, you know, in Australia and in New Zealand, it's almost standard practice to set up a family trust.
Speaker A:It's called, you know, that's been what everybody does and it's standard advice out there.
Speaker A:The change in rules.
Speaker A:Well, maybe let's mention that a trust is taxable, basically, where the trustees are, you know, so if I set up a trust in Australia and the trustees are me and my friend John or Jane, and I come to the UK as individuals, I just brought that trust into the uk, so unintended consequences of life, you know.
Speaker A:So we had a chat recently whose father had set up like I think 300 family trusts in Australia for property.
Speaker A:And now, apart from the fact that he may have some issues if he's a trustee of these trusts that he's now living and working in the uk.
Speaker A:His bigger problem is he's also a US citizen and each trust requires separate disclosures.
Speaker C:Oh, my gosh.
Speaker A:Did he have to pay?
Speaker C:I think is all I have to say.
Speaker A:The estimate of fees ended up something like £300,000 in order for him to do his US tax for the last three years.
Speaker A:It's so complicated.
Speaker A:Obviously I was warned this would happen.
Speaker A:Obviously he thought I was mad and I was making it up and said, well, thanks very much, see you later, I'll see you later.
Speaker A:And they said to me, don't worry, he'll be back in six months because they'll go and ask everyone else and they'll tell him it's half a million, so he'll start thinking you're a bargain.
Speaker A:But anyway, let's ask the business question.
Speaker A:Are trusts useful for in business?
Speaker A: I mean, nowadays, since: Speaker A:It also can sell a subsidiary, it can sell a company it owns more than 10% of without paying tax.
Speaker A:Again, relatively unusual.
Speaker A:Sort of.
Speaker A:This is why UK companies are still in the top 10 list of good places to structure holding companies and compete with places like Singapore or Delaware C companies which have similar rules.
Speaker A:So nowadays if, if, if you're dealing with a client.
Speaker A:So if you've got.
Speaker A:If you have a business and you have a family and you're trying to work out how to plan, I think you need to be much more in the realm of saying, I should get a holding company, you know, a family investment company, they're sometimes called, or pfic or pic, Personal investment Company.
Speaker A:Don't let the names confuse you.
Speaker A:They're just limited companies that you have the shareholder, your wife and your kids, maybe, you know, I mean, to that point, any money your kids get will be taxable on you, by the way, in most cases until they're over 18.
Speaker A:But you can effectively set up an entity that your family own, it's a limited company, and then try and own other businesses you have.
Speaker A:I mean, it's.
Speaker A:I mean that from a com.
Speaker A:From a business point of view, we're more likely to do that, aren't we?
Speaker B:I mean, yes, the family investment company has more or less always been there, but it's come into its own recently, especially with the changes to the trust rules.
Speaker B:But there is still scope for trusts who own shares in the family investment company as well.
Speaker B:So the right kind of trust could own shares and in fact the right kind of.
Speaker A:What's the advantage of that, do you think?
Speaker B:Well, if the company pays out dividends, the same things we were talking about before, as in like grandfather wants to like pay the school fees for the children, dividend income could go into a trust for the benefit of the children and essentially it would only come out to pay their school fees, that kind of stuff.
Speaker B:Essentially a trust out there is just a receptacle that says, okay, I'm going to hold this money.
Speaker B:Because otherwise the position would be he'd give those shares to his son and he wouldn't get any hold or any capital gains tax.
Speaker A:Just allowing you to stream income to someone else in the future, effectively for the right purpose.
Speaker A:For the right purpose, streaming income and capital.
Speaker B:Yes.
Speaker B:So trusts can actually hold shares in family investment companies that could be actually very, very beneficial for the whole family as a whole.
Speaker A:The trouble also with all these planning things is you, by the time you've got enough money to want to do the planning, you know, you're at a place where the thing's probably valuable and the tax consequences are quite bad.
Speaker A:And when you're at an early stage setting up a trust and a this and that, it feels like too much.
Speaker A:But the truth is of these things is when something's not worth much, like you've started a company, it's currently worth nothing.
Speaker A:Bloke called Bob with a lawnmower or whatever, you know, it's nothing at the moment, but it could turn into being JCB or whatever, you know, who knows?
Speaker A:At that moment is when you can put things into limited companies or put things into trusts and the tax consequences are effectively, you know, no, too bad.
Speaker B:Manageable.
Speaker A:Manageable.
Speaker A:So, you know, there is an aspect of which you want to do these things earlier, but the truth is they're not worth doing until the money's big and then by then it becomes difficult.
Speaker A:But if I were to give another experience example, it's like, well, surely there are times when offshore is the right thing to do.
Speaker A:Yeah, I mean in business terms, if your other investors are all offshore or in low tax places, if, if you know, you've got a customer base perhaps which is very international, you need a really strong commercial argument where someone would say, well, we don't want this all in the uk I'm a, I live in Dubai and you live in, you know, Switzerland and my other investor lives in the Bahamas.
Speaker A:And they don't want all their money going into the UK and being trapped.
Speaker A:The UK system and tax in the UK system, we want to set something up offshore that is going to hold intellectual property or do something.
Speaker A:I don't want to get like into the detail, but it's about this commercial justification that you would then have a justification to the revenue that you could explain and you've got to work through a million tests and stuff about control foreign companies, but you might have a good reason then to say, well, I won't get the investment if they invest in a UK company because they don't want to have anything to do with inheritance tax.
Speaker A:And by the way, a UK company is subject to inheritance tax even if they're overseas.
Speaker A:You know, I mean, I think I'm probably complicating the issue, but it's probably a bit like you want to give money to your grandkids.
Speaker A:It's like you have to start from a really strong commercial intent in business or personal need.
Speaker A:That is, that's, that's what's driving this behavior.
Speaker A:That's why I need to do this.
Speaker A:And as long as you have that, then it could be worth the effort, you know, it could be worth.
Speaker A:I mean, I mean, is that fair?
Speaker B:We go back to where we started, as in if there is a commercial or if there is a practical living used for a trust, then the tax consequences might be beneficial but you don't go into them because you wanted to save tax.
Speaker A:Brilliant.
Speaker A:Let's end there, I think, should we?
Speaker A:Any.
Speaker A:Anything else?
Speaker A:I think that's good.
Speaker A:Well, I have to thank my dear esteemed colleagues Ori Clark, Emma and Jeremy.
Speaker A:Thank you for joining us and take it.
