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Family Business Trust Advice

Author

Sharon Collier

An experienced Chartered Tax Adviser and Trust and Estate Practitioner, Sharon joined ETC Tax in September 2016.

“Education is the best provision for old age.” Aristotle

Parents and grandparents have always taking a keen interest in ensuring that their children receive the best start in life by providing them with the best possible education. Our Family Business Trust offers a tax efficient way of structuring this endowment.
Many parents or grandparents who run a family company provide significant funding to their children or grandchildren for the payment of school and university fees.

Provision of funds out of post-tax profit can be very expensive in tax terms, especially for higher or additional rate tax payers who have a large family.

Example:

Mr and Mrs X have two children in full time education in private school with associated fees of £15,000 per annum per child.
In order to pay for the children’s educational requirements this has a tax cost to Mr and Mrs X of £14,446.25 per annum (assuming Mr and Mrs X are both higher rate tax payers, £22,225 x 32.5% x 2)

Family Business Trust

Under the proposed planning, it is envisaged that a proportionate number of shares will be transferred to a trust for the benefit of the children and future generations.

Following the share transfer, the trustees will be entitled to obtain dividend income.

Payments can subsequently be made to the trustees to utilise the personal allowances and basic rate bands of the beneficiaries.
The structure has the flexibility of being able to sit ‘dormant’ when not required, and reactivated for future grandchildren if desired.
In the above scenario, annual tax savings of £14,446.25 can be achieved.

I like the tax savings but Trusts are complicated and don’t I lose control?

Trusts are not complicated structures they are simply a way of transferring the benefit of an asset to other people without giving them outright control over the asset. You can retain control over the assets, how the trust capital is invested and how and when beneficiaries receive value and income of the trust.

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