Time to review trust investments
Many trusts hold shares and other investments that they acquired a long time ago. The reduction of the capital gains tax (CGT) rate to 18% makes this an ideal time for trustees to review investments. They may no longer be the most suitable investments but may have been kept because they carried a large unrealised gain. The changes to CGT since 6 April 2008 have generally made it less costly to sell such investments.
The 18% CGT rate has also increased the advantage of investments that yield a capital gain over income-producing investments, on which trusts generally pay tax at 40%. But as with any investment decision, tax is not the only issue. You must always consider investment issues such as the overall return, risk, the required investment term and whether the trust needs regular income to fund payments to beneficiaries.
The government has also extended the period in which interest in possession trusts can change their beneficiary without coming under the new inheritance tax rules introduced in 2006 for these types of trusts. Trustees of trusts that started before 22 March 2006 now have until 5 October 2008 to make such a rearrangement and continue to avoid inheritance tax charges every ten years and when trust capital is paid out.