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PBR tax hike on trusts will make them “less attractive,” says Skandia’s Jelley

The Government is increasing the dividend rate for discretionary trusts from 32.5 per cent to 37.5 per cent and upping their rate of tax from 40 per cent to 45 per cent on other income, under new measures announced in today’s pre-Budget report.

The new rates will be brought in from 2011-2012, meaning the UK public will need to vote Labour to see them implemented.

According to Skandia head of tax and financial planning Colin Jelley the rate hike will make trusts “less attractive” which is disappointing given the number of people who set up trusts for non-tax purposes. He says: “It doesn’t have a significant impact on the bonds and collectives debate because you can assigned bonds in and out of a trusts without any immediate tax liabilities and you can do the same with collectives.”

Jelley says trustees holding a collective may be disadvantaged but it depends on what they plan to do with the income. He says: “Where the income is distributed to the beneficiary, they will pay tax at their own marginal rate. However those who accumulate the income will be forced to pay the 45 per cent tax.”


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