From April 6, 2010, dividend income tax will increase from 32.5 per cent to 42.5 per cent and income tax will increase from 40 per cent to 50 per cent within discretionary trusts.
Head of tax and estate planning Mark Green says that, on top of these tax rises, if discretionary trust trustees put money into a unit trust and encash a unit, they would pay 18 per cent capital gains tax, making it expensive to distribute to a beneficiary.
He says: “With insurance bonds, there is no ongoing tax charge and you can withdraw up to 5 per cent. You are sidestepping the charge until a later period.”
Worldwide Financial Planning IFA Nick McBreen says: “There is an opportunity for trustees to review the investment structure and assets held within the trust.”