My father died two years ago leaving property assets in a discretionary family trust set up during his lifetime. At what stage does the trust become liable for its tax (6 per cent of the trust’s value in year one); at the date of demise or at the date of transfer of assets into the trust? I cannot get a clear answer to this question.
The date is dependent on the circumstances of the potential beneficiaries (referred to as the objects of the trust). The initial once-off 6 per cent charge to a discretionary trust arises by deeming the trustees to have taken an inheritance of the trust property at the latest of the three following dates: (a) the date on which the property becomes subject to the discretionary trust; (b) the date of the disponer’s death; or (c) where there are principal objects of the trust, the date on which there ceases to be a principal object of the trust under the age of 21.
The tax is payable within four months of the valuation date of the inheritance deemed to be taken by the trustees (assuming there is no principal objection under the age of 21).
It is worth noting that where the entire trust property is appointed out of the trust to an object of the trust within five years of the date of the 6 per cent charge arising, the 6 per cent charge is reduced to 3 per cent. An annual 1 per cent charge also applies to discretionary trusts, and the valuation date for the 1 per cent annual charge is fixed at December 31st each year.
Suzanne O’Neill is a tax partner at RSM Ireland
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