The Property Prison

Foresight Estate Planning & Will Writing Services

Is your house locked up in a trust you are not in control of? Urgent information you need to know!

For the last few weeks there has been a lot of publicity in newspapers & on TV around people who have placed their properties into trust with companies that have now gone into administration or have been taken over by third party companies that are not responding to angry and upset customers who are unable to sell their properties or access monies in their trusts.

‘This is Money’ tabloid & BBC’s woman’s hour has raised the questions as to how this has happened and the heartbreaking impact this has caused bereaved families or those just looking to sell their homes.

The issues have arisen because the original firm, the ‘Family Trust Corporation’ (FTC) who were named on Land Registry as the owners of the house meaning customers have been at the mercy of a firm which was subsequently taken over by Philips Trust Corporation (PTC) in 2018, this occurred after the Will Writing Company who FTC were associated with of went into administration. PTC who in January this year, were found in ‘serious breach’ of the Association of Corporate Trustees code of practice, and they had their membership cancelled, they are now on the edge of administration, which is yet to be confirmed but will impact a huge number of individuals.

The Solution
Foresight Premier Law have successfully over the last year been working with individuals to navigate through a difficult period of uncertainty, following the news above. We have worked on 150+ cases and counting where the FTC are being removed as trustees and being replaced with trustees of the customers choosing without the involvement of the PTC while still keeping the property within the trust and protected for the family moving forward.

We have also been making customers aware of several impending requirements & legislation changes being introduced by HMRC regarding a new anti-money laundering directive (AMLD) involving trusts.

The three impending trust changes you must be aware of are:
Trust registration with HMRC for money laundering
Periodic charges/Anniversary taxes (every 10 years)
Inheritance tax (IHT) and the new Resident Nil Rate Band (RNRB)

HMRC Registration
From the 31st August 2022, all lifetime trusts that have assets in excess of £100/IOU’s or hold property will have to registered with HMRC. The reason for the introduction of this legislation from HMRC is to narrow down organised crime and the advanced vehicles they use to launder money and also to assist with the UK’s impending exit from the European Union.

Nominated trustees will be liable and tasked with registering the trust by informing HMRC of all trustee information, all potential beneficiaries and the assets the trust holds. This will also help HMRC determine when the lifetime trust is liable for any periodic charges or what are normally called anniversary taxes.

Periodic charges/Anniversary Taxes
Anniversary taxes are only due if the value of the assets within the trust exceeds the IHT threshold on its tenth-year anniversary. If the value exceeds the allowance, a 6% charge is incurred on the exceeded value. Currently for a single person that allowance is £325k and for married couples it will be £650k.

For example: for a single persons trust, if it was set up in 2011 and the value at the time was £250k but in 2021 the value of the trust assets are £385k, this would exceed the £325k IHT allowance by £60k which would incur an anniversary tax of 6%, or in other words a tax bill of just over £3,600 payable by the trustees immediately. For married couples it would be a 6% charge only on trust assets exceeding £650k.

Inheritance Tax (IHT) & The Resident Nil Rate Band (RNRB)
In 2017 the government introduced additional IHT allowances that increased the amount you could leave tax free when you die, this new allowance is called the Residence Nil Rate Band (RNRB) and from April 2020 it is set at £175k. This was great for single people who could then leave potentially up to £500k tax free when they died or up to £1 million for married couples. But, this allowance was conditional on the fact that the RNRB allowance has to go directly to the beneficiaries and not via a discretionary/lifetime trust.

This means that if you have an estate in excess of £325k for a single person or £650k for a married couple you will be liable for IHT at 40% on any assets you leave over these amounts when you die. If you direct assets to a discretionary trust then you will not be able to take advantage of the new additional RNRB allowances that could save an additional £70k for single person or £140k for married couples in IHT.

The majority of clients who set up these family trusts did not have IHT issues and the value of the assets within the trust were well below any thresholds but, as time has gone by and with increasing property prices these issues are starting to hit home, if not now possibly in the next 3-5 years.

The main reasons why the lifetime family trusts were advised and taken advantage of was to provide the ultimate protection of the asset held within them, protecting it from life’s social issues while offering ease of the transition of assets from one generation to the next while at the same time providing your chosen beneficiaries the ability to protect the asset from generation to generation.

Help is at hand
As a company we are happy to confirm that we can provide a solution for all three changes stated above along with the change of trustees from the FTC to the clients choosing. Not only will we be providing a trust registration service for all clients with lifetime family trusts but also the option to update your family trusts to include additional clauses & trustee powers along with key provisions to take advantage of not only the RNRB allowances but also to ensure the assets within the discretionary settlement will never exceed the Periodic Charges or Anniversary Taxes in your lifetime.

This Family Trust Update includes:
Registration with HMRC
No periodic charges/Anniversary Taxes in your lifetime
Full carve out of the new RNRB IHT allowances
Review of the current Will & Inheritance Tax position

As you will appreciate, to provide this legal service there are fees involved for the drafting of all legal documentation and dealing with HMRC, taking the liability away from all clients and trustees, this is something we can discuss with you in more detail on a one to one basis and in layman’s terms. To arrange an appointment give us a call on 01603 268082.

Lifetime trusts require maintenance and regular reviews which we provide as part of our ongoing service. We believe this update will cover any concerns/issues all Family Trust clients have now and in the future while maximising what can be protected for your family regardless of what life throws at you.

Reference
thisismoney.co.uk Safe Hands-linked Philips Trust’s fate leaves thousands in the dark | This is Money