Lifetime Trusts

Lifetime Trusts are often known as Property Protection Trusts or Asset Protection Trusts. Unlike Will Trusts, which come into being on your death, lifetime trusts are established straight away. Your home is gifted to the trust, which allows you to carry on living in it.

It is generally not possible to use a Lifetime Trust to exempt your home from the local authority’s calculations of your assets, when assessing your care home costs.

The tax treatment of Lifetime Trusts is something one should consider carefully. Because you gift the house to the trust, it can attract inheritance tax if it’s worth more than the nil-rate band (currently £325,000).

Those who transfer their property to a Lifetime Trust may face an immediate 20% charge on any balance over £325,000 (including gifts made in the previous seven years), while the trustees must submit tax accounts to HMRC. They may have a further tax bill every 10 years, worth 6% of the value over £325,000, plus income tax on any payments from the trust, plus exit charges on assets.

If the trustees sell assets within a trust, these may also be subject to capital gains tax. These may also apply if a trust is liquidated and everything is passed to the trustee.

Capital gains tax will be calculated the same way as it is for individuals, though the annual allowance is smaller – £6,000 in 2019-20 and £5,850 in 2018-19. The exception is if the trust has been set up for a someone disabled – in which case the annual allowance is £12,000 in 2019-20 (and £11,700 in 2018-19).

It is therefore vital you seek advice before setting up a Lifetime Trust, as the tax implications can be significant. This is especially true if the beneficiaries of the trust aren’t UK residents, as the rules can quickly become even more complicated.

Our specialist team are experienced in drafting Lifetime Trusts for clients in line with their personal circumstances. If you would like to speak to a member of the team, please contact 03333 058375 or email WealthProtection@psg-law.co.uk

Read our Wealth Protection FAQs