CGT hike brings stealth tax for trustees
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The emergency budget has introduced a new stealth tax on trustees which industry experts suggest could present a great financial planning opportunity for advisers.
In his first budget as Chancellor, George Osborne yesterday announced that trustees and personal representatives of deceased persons will be liable to capital gains tax (CGT) at 28% whereas individuals will continue to pay 18% if their total taxable gains and income fall below the higher rate income tax threshold.
Trust and estate practitioner Paul Willans says this is the first time in recent years when those administering an estate may be liable to a higher rate of tax on gains realised.
He says it could have consequences for estates holding assets such as shares that could grow significantly before the estate is wound up and distributed. He adds that depending on the eventual legislation in the Finance Act, it may be possible to mitigate such tax by transferring assets with gains in specie to beneficiaries, or earmarking them for interim distributions to reduce CGT exposure. (article continues below)
He says: “They could be paying considerably more tax than if the asset had been passed to the beneficiary straight away, rather than gathering up all the assets, paying off liabilities, selling assets and passing the net amount as cash to the beneficiaries.”
Gerry Brown, a tax and trust manager at Prudential, says: “This is a tax planning strategy which should be adopted rather than having the trustee sell their assets and passing the proceeds out to the beneficiary. The beneficiary would be possibly taxable at 18% as opposed to the trustee’s 28%.”
