1. 1 Trustee tactics before April 2010 Julie Hutchison, LLB (Hons), Dip LP, NP Head of Estate Planning This presentation is intended for qualified financial advisers only and must not be relied upon by anyone else. © 2009 Standard Life

2. 2 What is covered 1. Discretionary trust tactics before April 2010 2. Options for trustee clients

3. 3 1Discretionary trust tactics before April 2010

4. 4 The need for integrated advice

5. 5 1Discretionary trusts in the UK 116,000 (Number of discretionary trusts filing tax returns in 2006/7, HMRC table 13.1)

6. 6 1Income in discretionary trusts 2006/7 Source : HMRC table 13.1 Dividends : £715M Interest : £375 M Rent : £225 M

7. 7 Tax changes announced with effect from 6 April 2010 50% / 42.5% 1Budget 2009 announcement

8. 8 1Impact on income distributions Examples to compare 2009/10 and 2010/11 Gross dividend of £1,000 Trustees receive £900 net dividend How much of the dividend income can be distributed? The following slides set out the figures :

9. 9 1Tax year 2009/2010 Example only £1,000 gross dividend Trustees pay 32.5% = £325 £100 tax paid at source Tax bill arising of £225 (it enters the “tax pool”) Net income after tax = £900 - £225 = £675 Income is to be distributed. £900 must have had 40% paid on it £900 x 40% = £360 tax due Credit given for £225 paid already Additional tax of £360 - 225 = £135 also due Amount available for distribution is £900 - 360 = £540 R185 form to beneficiary shows £360 tax paid Beneficiary may be able to reclaim some or all of that tax

10. 10 1The beneficiary’s position Trust dividend income of £900 : £540 distributed in 2009/10 Example only Tax status of beneficiary Tax reclaim position Final value of income in their hands Effective rate of tax 40%n/a£54046% 20%20% (£180)£72028% Non-taxpayer40% (£360)£90010%

11. 11 1Tax year 2010/2011 Example only £1,000 gross dividend Trustees pay 42.5% = £425 £100 tax paid at source Tax bill arising of £325 (it enters the “tax pool”) Net income after tax = £900 - £325 = £575 Income is to be distributed. £900 must have had 50% paid on it £900 x 50% = £450 tax due Credit given for £325 paid already Additional tax of £450 - 325 = £125 also due Amount available for distribution is £900 - 450 = £450 Compared to 2009/10, this is £90 lower. R185 form to beneficiary shows £450 tax paid Beneficiary may be able to reclaim some or all of that tax

12. 12 1The beneficiary’s position Trust dividend income of £900 : £450 distributed in 2010/11 Example only Tax status of beneficiary Tax reclaim position Final value of income in their hands Effective rate of tax 50%n/a45055% 40%10% (£90)54046% 20%30% (£270)72028% Non-tax payer50% (£450)90010%

13. 13 2Options for trustee clients The need for integrated advice

14. 14 Legal/tax Create an interest in possession (IIP) Radically different income tax treatment (see next slide) Revocable / irrevocable Deed of appointment needed : law firm involvement 2Options

15. 15 2IIP trust - income tax 50% / 42.5% rates do not apply; tax pool rules do not apply IIP trust only pays basic rate tax Type of incomeTax treatment in the hands of IIP trustees Dividend income10% Rental income20% Interest20%

16. 16 Legal/tax Cashflow for beneficiary Mandate income? Mixed trust? IHT position is neutral = good result 2Options - create an IIP

17. 17 Investments Should the Trustees look at an new investment strategy? This needs to dovetail with the goals of the trust Some investments generate capital rather than income 2Options for trustee clients

18. 18 2Options for trustee clients The need for integrated advice

19. 19 Trustee tactics before April 2010 Julie Hutchison, LLB (Hons), Dip LP, NP Head of Estate Planning This presentation is intended for qualified financial advisers only and must not be relied upon by anyone else. © 2009 Standard Life

20. 20 The legal stuff! Tax and legislation are likely to change. The information given here is based on Standard Life’s understanding of law and HM Revenue & Customs practice at today’s date. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this information. Standard Life accepts no responsibility for advice which may be formulated on the basis of these examples. Standard Life Assurance Limited, registered in Scotland (SC286833), Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. If you have any questions call us on 0845 60 60 191. Call charges may vary. Calls may be recorded/monitored for training purposes. Authorised and regulated by the Financial Services Authority. © 2009 Standard Lifewww.standardlife.co.uk