MHA
Managing your trust’s investments: stop before you cash in
Most trustees have a wide range of investment powers, allowing them to invest in any type of investment, so long as they align with the goals of the trust. Types of investment may include investment bonds or
Katriona McEwan Tax Director Tax and Estates Team MHA
a non-qualifying life insurance policy. If and when these investments are cashed in, a Chargeable Event Gain (CEG) can arise, and the profi ts (or gains) may be taxable. A CEG refers to the increase in value of the investment
bond between the time it is purchased and the time it is sold/cashed in. Despite being a gain and capital in nature, the CEG is liable to income tax. If you are the trustee of a trust holding an investment
bond or non-qualifying life insurance policy, and you are considering cashing this in, the following points should fi rst be understood:
Tax liability depends on your circumstances As mentioned above, the CEG, despite being a gain, is liable to income tax. However, when the policy is held on trust the person liable for the tax diff ers depending on the following circumstances: ■ If the investment is held on Bare Trust, the benefi ciary will be liable to tax on the gain.
■ If the investment is held on other trusts (i.e. discretion- ary or interest in possession trust) the person liable to tax on the CEG is the settlor of the trust. T e settlor has a right to recover any tax payable in this situation from the trustees.
■ Where the settlor has died or is non-UK resident at the time, the trustees will be liable to the tax on the CEG.
If the trustees are liable to tax on the CEG they will
pay tax at the rate applicable to trusts on savings income, currently 45%. If the investment is UK based this will come with a 20% notional tax credit so only 25% tax will be payable by the trustees. Non-UK investments do not have a notional tax credit, and the full 45% tax liability will be payable by the trustees. If the profi t or gain from cashing in an investment
pushes a basic rate taxpayer into higher rate, or a higher rate taxpayer into the additional rate, there is a special relief available known as ‘top slicing relief’ (TSR).
ALL THINGS BUSINESS | 8
FINANCE
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