Top Tip – Chargeable Events on Bonds
Written by Jane Alford
Brought to you by Brand Financial Training http://www.brandft.co.uk
This week I wanted to look at bonds under trust and what happens when a chargeable event happens. Who is it taxed on?
First question to ask:
Was the settlor alive in the tax year when the chargeable event happened?
Yes? Gain is assessed on the settlor. (Tax can be recovered from trustees).
No? Onto the next question:
Was the trust/bond set up before 17th March 1998 and did the settlor die before this date?
Yes? Gain escapes tax due to the ‘dead settlor rule’. (Assuming the contract hasn’t been varied or enhanced since then).
No? Gain is taxed on the trustees.
Exceptions – where the settlor is not a UK resident at the time of the gain then the gain will fall on the trustee’s shoulders. If there isn’t a UK resident trustee then it will fall to the beneficiary/ies (who won’t be able to use top slicing).
NB: If a bond has been placed into a bare trust the revenue have confirmed that any chargeable gain will be assessed on the beneficiary and not the trustees or the settlor.
If the trustees have to pay the tax they have a standard rate band of £1,000 – any chargeable gain over £1,000 will be taxed at 30% (worked out as 50% trust rate less 20% deemed to be paid in the fund).
As always, I would be interested to hear any comments or thoughts.
Links to the appropriate exams are:
Brand Financial Training