While the firm welcomed the use of trusts to protect client assets, it noted that a failure to set them up correctly could lead to unexpected periodic and exit tax charges.
Trusts with assets in excess of the nil-rate band (set at £325,000 until 2015) can incur periodic charges of up to 6% of the trust’s value on the tenth anniversary, the company said.
A maximum proportionate exit charge of 6% also applies, when capital is paid out from such a trust between ten-year anniversaries.
The firm highlighted the Rysaffe Principle which states that, where the sum assured or asset in question is of a certain size, it should be placed in multiple “unrelated” trusts.
Such a solution avoids the periodic and exit tax charges that can apply to any discretionary trusts with assets exceeding the nil-rate band.
“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,” said Jeff Smith, commercial director at The Asset Protection Strategy.
“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.”
