Tax advice of the week: Shield more with a bare trust
If you have children under 18 and are expecting to make capital gains on any investments, consider setting up a bare trust.
If you have children under 18 and are expecting to make capital gains on any investments, consider setting up a bare trust, says The Schmidt Report.
By holding a proportion of your shares or an investment property on which you are expecting to make gains in a bare trust, you can take advantage of their annual capital-gains tax (CGT) exemption. This is £10,100 for the 2009-2010 tax year, so with a CGT rate of 18%, the saving is around £1,800 tax per year per child.
A bare trust is one where an asset is in your name but held "entirely for the benefit of a child". Capital gains that arise from selling shares or properties therefore accrue to your children, not you and "unlike with income tax, there is no rule saying that capital gains which you have 'transferred' to your minor children get taxed on you".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, the Estatesortrusts.co.uk website says bare trusts are "irrevocable" and the "terms of the trust, including the beneficiary, cannot be changed". Also, once a beneficiary reaches 18 they can call on the trust property immediately. So seek professional advice first.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?
Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
By Kalpana Fitzpatrick Published
-
What does Rachel Reeves’s plan for growth mean for UK investors?
Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
By Katie Williams Published