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The right strategy for a decent discretionary trust (DT)

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
BarrenFluffit
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The right strategy for a decent discretionary trust (DT)

#31847

Postby BarrenFluffit » February 15th, 2017, 8:17 pm

Where a DT has over £1k of income, dividends are charged tax at 37.5% (and 40% for other income). CGT is payable at 28% on gains of over £5.1k.
It all adds up while the DT is investing for the future needs of a beneficiary.

ISA's and VCT's are not available and the investment should be suitably diversified (while remaining manageable from a record keeping perspective.

While a low cost global tracker seems tempting, the tax rate takes the shine off it.

Any thoughts/suggestions on suitable types of investment or efficient structures for a DT?

OLTB
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Re: The right strategy for a decent discretionary trust (DT)

#31865

Postby OLTB » February 15th, 2017, 9:23 pm

I think an Insurance Bond wrapper (either onshore of offshore) would be most appropriate - not income generating/no CGT issues/various asset classes and can be assigned to beneficiaries when required without tax implications on the DT.

Cheers, OLTB.

Dod1010
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Re: The right strategy for a decent discretionary trust (DT)

#31878

Postby Dod1010 » February 15th, 2017, 9:56 pm

Seriously consider winding up the DT would be my solution I think

Dod

BarrenFluffit
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Re: The right strategy for a decent discretionary trust (DT)

#32087

Postby BarrenFluffit » February 16th, 2017, 4:13 pm

I'm not sure we'd get away with winding it up but its a worthwhile thought.

The insurance bond approach looks promising; probably one bond in each ultimate beneficiaries name so it can passed on at the appropriate point.

Thanks for your thoughts, most helpful.

Kantwebefriends
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Re: The right strategy for a decent discretionary trust (DT)

#39452

Postby Kantwebefriends » March 18th, 2017, 12:30 pm

BarrenFluffit wrote:Where a DT has over £1k of income, dividends are charged tax at 37.5% (and 40% for other income). CGT is payable at 28% on gains of over £5.1k. It all adds up while the DT is investing for the future needs of a beneficiary. ... the investment should be suitably diversified


Why "should"? I used to be a Trustee of a DT; the Deed gave us the power to invest as we liked, saying explicitly that there was no requirement for diversification.

BarrenFluffit wrote:Any thoughts/suggestions on suitable types of investment or efficient structures for a DT?


We had a spell of lending money to beneficiaries without index-linking and without interest. (The Trust Deed explicitly permitted this.) The purpose was to let beneficiaries take advantage of use-it-or-lose-it investment or tax avoidance opportunities, particularly contributions to pensions, and subscriptions to PEPs/Tessas/ISAs. It worked out well for the beneficiaries, which did seem to be the point of the Trust. True, when the loans were paid back we then might have had your what-to-invest-in question, but by then a new generation of beneficiaries had reached the age of majority so ........

BarrenFluffit
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Re: The right strategy for a decent discretionary trust (DT)

#39830

Postby BarrenFluffit » March 20th, 2017, 1:27 pm

Kantwebefriends wrote:
BarrenFluffit wrote:Where a DT has over £1k of income, dividends are charged tax at 37.5% (and 40% for other income). CGT is payable at 28% on gains of over £5.1k. It all adds up while the DT is investing for the future needs of a beneficiary. ... the investment should be suitably diversified


Why "should"? I used to be a Trustee of a DT; the Deed gave us the power to invest as we liked, saying explicitly that there was no requirement for diversification.


Diversification is a requirement of the Trustee Act 2000 c. 29 Part II Section 4:

a trustee must have regard to the standard investment criteria.

"The standard investment criteria, in relation to a trust, are—
(a).........

(b)the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.

http://www.legislation.gov.uk/ukpga/2000/29/section/4

Don't know if this is dis-applied by an explicit provision in the trust.

Kantwebefriends wrote:We had a spell of lending money to beneficiaries without index-linking and without interest. (The Trust Deed explicitly permitted this.) The purpose was to let beneficiaries take advantage of use-it-or-lose-it investment or tax avoidance opportunities, particularly contributions to pensions, and subscriptions to PEPs/Tessas/ISAs. It worked out well for the beneficiaries, which did seem to be the point of the Trust. True, when the loans were paid back we then might have had your what-to-invest-in question, but by then a new generation of beneficiaries had reached the age of majority so ........


An interesting idea; will think it through.

BarrenFluffit
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Re: The right strategy for a decent discretionary trust (DT)

#39832

Postby BarrenFluffit » March 20th, 2017, 1:38 pm

OLTB wrote:I think an Insurance Bond wrapper (either onshore of offshore) would be most appropriate - not income generating/no CGT issues/various asset classes and can be assigned to beneficiaries when required without tax implications on the DT.

Cheers, OLTB.


Been looking at the murky world of costs, inhouse funds and insurance bonds. Tracker funds are nowhere near as common as in the ISA market and are much more expensive.

At the moment Legal and General are looking most promising iro of reasonable costs / tracker availability.


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