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IFAs urged to beware of unnecessary trust tax charges

IFAs have been urged to ensure they do not unintentionally expose their clients to unnecessary trust tax charges.

The Asset Protection Strategy is warning that a failure to set up trusts properly could lead to potentially punitive “periodic” and “exit” tax charges.

APS says, under what is known as the Rysaffe principle, where the sum assured or asset in question is in excess of the nil-rate band, which is set at £325,000 until 2015, it should generally be placed in multiple unrelated trusts, to avoid periodic and exit charges.

Periodic charges can be up to 6 per cent of the trust’s value on the tenth anniversary of the trust, while a maximum proportionate exit charge of 6 per cent applies when any capital is paid out from such a trust between 10-year anniversaries.

The APS says for a single policy for £500,000 sum assured placed into a single trust there is a potential for a £10,500 tax charge on the tenth anniversary and further charges on subsequent 10-year anniversaries.

APS commercial director Jeff Smith says: “With the rising popularity of trusts, we are urging advisers to be on their toes and not to expose their clients to these unnecessary tax charges by placing sizeable assets in single trusts.

“This is by no means an endemic problem but as trusts are set up, in many cases by less experienced advisers, further down the line there could be a spate of unexpected tax liabilities, with ramifications for clients and advisers alike.”


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  1. Brilliant article. Something as advisers we should all be aware of.

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