Trusts and Lobster Pots Today’s elections will change little in the short term though tomorrow expect a barrage of ‘new’ ideas from the party in Government… In the property tax world, social media is the biggest driver of opinion leading to action, something I could never have imagined when I started out in the late ‘70s. New enforcement rules regarding qualified tax advisers will be with us shortly but I see nothing to halt or even slow the volume of traffic from ‘experts’ who know a little and push agendas on a platform with little or no regulation. Even qualified individuals from professional firms occasionally make light of key subjects - the substantial changes to ‘incorporation’ spring to mind. Trusts figure large in the social media sphere, seemingly an answer to all ills. I read one informed commentator refer to trusts as lobster pots - easy to get into but very difficult to get out of. Daily, I read about the ‘attractions' of putting the family home into trust to ‘deal’ with inheritance tax and/or care fees. For landlords it is transferring portfolios into trust as a ‘solution’ to S.24. In an earlier phase of my career while at one of the big 4, the phrase “turnover is vanity, profit is sanity” was an annoying soundbite but is a little relevant to the issue of Trusts. The version trotted out on social media could be described as vanity [more akin to fantasy] and the reality most definitely sanity. At the time of writing [May 2026] the ability to make gifts remains and so gifting assets - property etc - into trust can be done so under this regime. Most understand the 7 year rule as it relates to the asset being removed from the individuals estate. Such a gift is known as a ‘potentially exempt transfer’ or PET. The transfer of asset is potentially excluded/exempt from the estate at death provided various conditions are met. The gift must not exceed the current [since 2009!] ‘nil-rate’ band [NRB] of £325,000; if it does it is deemed to be a ‘chargeable lifetime transfer’ [CLT] carrying with it an unpleasant condition - half of the IHT [20%] is due on the excess over the NRB at the time of transfer. Then, every 10 years there is the periodic/decennial charge of 6%. It would be prudent to maintain a degree of liquidity within the Trust - though many do not plan for this, maybe due to being unaware. Aside from the ‘gift with reservation of benefit’ rule [gifting the family home into Trust means either no longer living in it or paying a market rent to the Trust] there are other issues to reflect on. Trusts are a tax entity with Trustees liable to tax on income and capital gains - just like ourselves personally and if assets are owned by a company. For example, that staple of the Trust diet - the discretionary trust - is liable to income tax at 45% on anything over £500 per year. There is no personal allowance or basic rate band or dividend allowance. Of course, as in all areas of legacy and succession planning expert and qualified advice is essential. Identify exactly what the objective is - if it is to "reduce the tax bill" a Trust is unlikely to be the answer.

Posted by Chris Haley at 2026-05-07 09:19:10 UTC