How can I use a trust to reduce my Inheritance Tax?


We often find when talking to clients that they are unaware of what a trust is, how it operates, and what the advantages can be.

In this video, Edward Marriage from MHA Henderson Loggie discusses trusts and if they can benefit you or your family.

Covered in this video:

✅ What is a trust?
✅ What is the purpose of a trust?
✅ What are the benefits of a trust?
✅ Are trusts suitable for everyone?

📌 If you have any questions, please contact Edward directly at edward.marriage@hlca.co.uk


*Edited video transcript*


What is a trust?

A trust is a way for individuals and families to control how their assets are transferred. It’s a legal concept involving the holding of assets for the benefit of others. Here at MHA Henderson Loggie, we worked with a variety of different trusts. The main three being a bare trust, an interest in possession trust and a discretionary trust. The trust that’s right for you will very much depend on your individual circumstances.


What is the purpose of a trust?

Often the main reason our clients look to set up a trust is to remove assets from their estate for the purposes of saving inheritance tax. This is potentially a 40% saving. If you wish to remove assets from your estate, you could simply gift these in your lifetime.


What are the benefits of a trust?

Well, one of the most appealing aspects that our clients find is control. Because you can specify the terms and conditions of a trust, you can control when and to whom distributions from the trust are made. This is very effective when dealing with children or young people and people that can’t take care of themselves.

Another great benefit of a trust is the protection of your family’s assets. Once you place assets into a trust for your children or your grandchildren, going forward into the future if they were ever to be married and unfortunately divorced, these assets can be ring-fenced and not included in the marital estate. This gives you great protection going forward into the future for your family.

In addition to the inheritance tax relief that trust can offer, they also offer great chances to reduce your income tax liabilities. This can be done with school fee planning in particular. Check out our video on this topic: How can Grandparents fund school fees in a tax-efficient way?


Are trusts suitable for everyone?

There are costs to running a trust as well as some administrative burdens. However, depending on you and your family circumstances, they can be extremely valuable. This would have to be looked at on a case by case basis


In summary

This has been a very brief overview of trusts. If you have any questions concerning the material covered, then please contact Edward at edward.marriage@hlca.co.uk

How can I use gifting to reduce my Inheritance Tax?


In this video, Paige Grossi from MHA Henderson Loggie discusses making gifts out of surplus income and how it can be a useful tool for inheritance tax planning. Covered in this video:

✅ What are the conditions for making a gift?
✅ How do you know if you have surplus income?
✅ How regular do the payments need to be?
✅ Does each gift need to be reported to HMRC?

📌 If you have any questions, please contact Paige directly at paige.grossi@hlca.co.uk


*Edited video transcript*


What are the conditions for making a gift?

The gifts must be made from surplus income, which means the donor must be left with enough income to maintain their usual standard of living. To qualify for the exemption, the donor must not dip into their capital to make the gifts. This means they cannot resort to using the capital to pay for their holidays for example, when they would usually use their income for this purpose. Most clients gift cash, but it’s also possible to get assets if you can prove that the gift was bought out of surplus income. The gift must form part of the normal expenditure of the donor, this means you need to prove a regular pattern of giving. One-off gifts or special gifts will not qualify for the exemption.


How do you know if you have surplus income?

In order to work out your surplus income, you must first calculate your income and expenditure. And MHA Henderson Loggie, we can provide a template to help you do this as we know it can be a daunting task.


How regular do the payments need to be?

As I mentioned previously, it’s important to establish a pattern. There’s no specified timing, but this could mean weekly, monthly or annually. A lot of our clients do as part of their annual tax return process.


Does each gift need to be reported to HMRC?

There’s no obligation to report the gift at the time to HMRC. However, good record keeping is important. It can save your family and executors a lot of time and hassle in the long run. We can provide templates to you that includes the essential wording and it allows you to personalise to your family members.


In summary

Hopefully, that was a helpful introduction to the significant tax savings that can be achieved by making gifts out of surplus income. If you’d like to get in touch to discuss further or receive any advice, please email Paige at paige.grossi@hlca.co.uk

How can Grandparents fund school fees in a tax-efficient way?


School fees can be very expensive for those looking at private education but with the right tax planning, there are significant tax savings that can be made.

In this video, Lucy Crow from MHA Henderson Loggie looks at the potential tax savings for parents and grandparents with a family business.

Covered in this video:

✅ Costs of private school
✅ School fees example
✅ Potential tax saving
✅ Other options for school fee planning

📌 If you have any questions, please contact Lucy directly at lucy.crow@hlca.co.uk


*Edited video transcript*


The cost of private school

The cost of private school can vary between different schools. On average for a day school pupil, it can range from £7,000 per year, per child, up to £20,000 and for those boarding, it’s more expensive starting from around £15,000 up to sometimes over £40,000 per year per child.


School fees example

If we take an average day school pupil of fees of £10,000 per year, over a 13-year education for the child, that would be over £130,000. If you’ve got three children, that’s £390,000. To pay fees of £10,000 per year, for a top rate taxpayer can mean extracting over £16,000 from the family business to leave them with the £10,000 after tax to pay the school fees.


Potential tax saving

In this planning, we use a trust together with the family business, to utilise the children’s personal allowances to allow you to take £10,000 from the business with no tax, thus leaving £10,000 to go straight to fund the school fees. This gives a tax saving of potentially over six thousand pounds per year. Over a 13-year school career, this is a tax saving of over £80,000 per child and therefore if you’ve got three children, that would be a saving of over £240,000.

In this video, we’ve used £10,000 as an example of the school fees. If the fees are higher than that, the tax savings would also be higher. The other important thing to notice that this isn’t just available for school fees planning. This planning can also be used to help fund further education costs such as universities.


Can anyone do this?

This particular planning is for those with a family business but can be utilised by parents, grandparents, or even wider family members that wish to assist with school fees planning.


Is this the only option for school fees planning?

We focused here on the tax savings that can be achieved for school fees planning with the family business, but there are a number of other options available. One, in particular, that is very popular, is gifts out of surplus income. Check out our video on this topic: How can I use gifting to reduce my Inheritance tax?


In conclusion

This was a brief summary of some of the significant tax savings that can be achieved with the right tax planning for school and university fees. If you have any questions or would like some advice, please contact Lucy at lucy.crow@hlca.co.uk.