Case Studies - Wealth Strategy 4

Mr N established a discretionary trust for his family, the beneficiaries being his three children. As a result of the sale of shares in a business, the value of the trust was £7million. The Trustees were concerned at the level of taxation on income and gains within the trust, particularly the 40% income tax rate (32% on dividends).

Specialist Solutions advised on a portfolio of income producing investments, so that the trustees could distribute income to the beneficiaries who were not using their personal allowances or were not using their entire basic rate tax band, allowing a substantial reclaim of income tax, paid by the trust. Specialist Solutions also advised that capital gains should be passed, each year, to those beneficiaries who were not using their CGT personal allowances. Once the investments to cover the agreed distributions of income and capital gains had been established and all income requirements for the beneficiaries were met, Specialist Solutions advised that the remaining capital should be invested in a structure to defer income and capital gains tax, giving a gross roll-up of all returns, whilst also allowing tax-efficient distribution of funds to the beneficiaries, if and when required. Specialist Solutions worked with the existing fund managers of the trust, to structure the tiers of investments, as described above.