IHT and trusts


When making succession plans, a large majority of British passport holders are advised to place their money, life insurance policies, property and assets into trust. By doing so, they effectively relinquish ownership of the assets placed into trust, instead nominating a trustee to mange and distribute the trust accordingly upon their death. As a result of placing assets into trust, the beneficiaries will not be liable to pay Inheritance Tax against the assets they inherit upon the death of the original owner of the assets.


What is a trust?

A trust is essentially a legal arrangement; a piece of paper that documents the directives for who to give money, policies and assets to, when, and in what amounts. It is the job of the nominated trustee to ensure this is done in line with the client’s wishes.



Once signed over, the trustee in effect takes ownership of the assets within the trust. They must be somebody trustworthy and responsible, and will then be tasked with ensuring the assets are distributed according to the directives in the trust.



The beneficiary/ies are those that will get the benefit of the assets, cash or property when it is distributed.


The benefits

Trusts are particularly invaluable when it comes to tax efficiency. Any assets held within the trust will usually not be subject to Inheritance Tax upon the death of the asset giver, as the assets are technically owned by the trustee. As such, for those with numerous valuable assets, a trust is one of the most vital areas of financial and succession planning that exists.


Types of Trusts

There are many different kinds of trusts. Some will be liable to pay different taxes, while others will not. The type of trust recommended will depend upon what the client wishes to achieve by setting one up.


Bare Trust

A bare trust is the most commonly used, and it simply gives all assets over to the beneficiary immediately if they are over 18.


Interest in Possession Trusts

The beneficiary will be able to get some income immediately, however they don’t have the right to any cash, property or investments which generate income. The beneficiary will also be liable for income tax on any income received from the trust.


Discretionary Trust

The trustee has complete control on how the assets are distributed. The trustee also has the right to decide how any assets within the trust are invested.


Mixed Trust

This type of trust can be set up to include features of all the aforementioned models. Some assets may be distributed immediately, while others may be held in a discretionary trust to be distributed at a later date.


Non-resident trust

A trust for trustees residing outside of the UK, this trust will often enable the trustees to pay a reduced amount of tax on income from assets within the trust, or none at all.

Trusts are extremely complex to set up, and it is essential that advice is taken before entering onto any kind of arrangement of this nature. Credence International has a number of fully qualified professional trust advisers on hand to offer insight into which type of trust is suitable for each individual circumstance.

Chris Ferguson

About Chris Ferguson

Chris formed Credence to bring credible financial advice to the offshore marketplace. Chris has been in financial services throughout his whole career, with experience in the GCC, United States, United Kingdom and Australia. Chris entered the financial services sector to enable as many people as possible benefit from freedom and choice in life by making good decisions rather than experiencing stress and anxiety over money.