Summer 2005 Newsletter Content More of the same? Around the world Hot tips Inside out? Sweet sacrifice Simple trust Done and dusted? Open immediately File under E An Inspector calls CO still OK Open for business High PHI Arctic chills Duty calls Pensions Fuelling around WIP round Win some, lose some Take it and go? Party talk Work less, earn less Making adjustments

Simple trust Trusts should perhaps be called "don't trusts" - often, you set up a trust if you don't trust the person you want to give something to, at least for the moment. You want someone you do trust - maybe your professional adviser, or an older relation - to look after the assets until the beneficiary has grown up, or maybe for the whole of their life. The tax system for trusts has changed radically over the years, and most of the tax advantages that they once enjoyed have been taken away. In particular, a discretionary trust - one where the trustees can pay the income out or can keep it in the trust - now pays income tax and capital gains tax at the top rate of 40%, even if the beneficiary is a basic rate taxpayer. The government has recognised that this is a little unfair if the trust has been set up not for tax avoidance, but to provide for a 'vulnerable person' - someone with a disability, or a minor child who has lost one or both parents. The trustees won't want to pay the money out each year because they are supposed to be looking after it for the beneficiary, but they will end up paying more tax that way - the beneficiary will usually be a basic rate taxpayer. So a new rule has been brought in, and backdated to the beginning of the last tax year, to allow the beneficiary to pay the tax on the trust's income and gains. This will save money, but it's still not quite as simple as the trustees just paying at a lower rate - the beneficiary will have to fill in a tax return, and the trustees will hand over the funds for the beneficiary to pay the tax. If you are the settlor or beneficiary or trustee of a trust, or you are thinking of setting one up, we will be pleased to advise you about the changes.