New trust statistics could show why investment bonds and trusts could be perfect bedfellows

10 February 2020

In September 2019, HMRC along with The Office of National Statistics released the Trust Statistics 2013/14-2017/18. While it shows that overall the number of trusts and estates completing self-assessment returns has fallen, the amount paid in tax and the number of trusts which have been registered under the Trust Registration Service have increased[1].
In summary this document shows:

  • In 2017-18, trusts and estates had total income of £2.73 billion which was an increase of 12% on the previous year.

  • 86,500 trusts paid tax at the trust rates (relevant property regime) via self-assessment returns in 2017-18 tax year which is a fall of 4,000 from the previous year.

  • Total income tax payable on trusts and estate in 2017-18 was £675 million

    • £140 million from interest in possession trusts,

    • £495 million from trusts taxable at the trust rates

    • The remainder was from other trusts, such as charities and estates.

  • The total amount of chargeable gains was £3.23 billion which was a slight increase to the previous year.

There are a few conclusions that can be drawn from this publication.
Firstly, the drop in the number of trusts could be due to the rise of family investment companies being invested in to for some people due to what is seen as the punitive tax paid under the relevant property tax regime.
Secondly, that the role of the trustee is becoming more burdensome with the introduction of the trust registration system, the concentration of HMRC on offshore trusts and non-domiciled individuals and the ongoing tax administration.
And thirdly, that while the trust deed will dictate the investments allowable and whether a “real income” such as interest or dividend must be paid to a life tenant, perhaps some of the trusts are paying income and capital gains tax unnecessarily and this is where investment bonds might be suitable assets for the trust over collectives.
While each have their own merits, from a trustees perspective, it is useful to re-examine some of the advantageous features of investment bonds:


Fund switching - no personal tax liability.

5% cumulative tax deferred withdrawals.

Non-income producing, simple administration and no reporting requirements to HMRC until a chargeable event arises.

Segmentation and assignments adds flexibility and control on when tax is due, and who pays it.

Top Slicing relief might apply reducing the rate of tax charged by applying a spreading mechanism. Factors that will need to be considered are the client’s marginal rate of tax, if the bond is onshore or offshore, the number of years the bond is held, whether this is a full surrender or a partial excess event, whether time apportionment is applicable and if there had been and previous chargeable events on the bond.    

Onshore - FSCS 100% protection with no upper limit.
Offshore - compensation scheme of tax jurisdiction where the bond is set up.

Onshore - Upon a chargeable event, if still a non or basic-rate tax payer no further tax is due.
Offshore- No/low tax - assets benefit from gross roll-up.

Offshore only - Chargeable gains treated as savings income, useful for non-rate tax payers.


Dividend allowance changes

The reduction in dividend allowance which took effect 6 April 2018 will also be a key consideration when looking at unwrapped portfolios.  Depending on the yield of a client’s portfolio, they could pay more tax on dividends received at their marginal rate. The table below shows, as the portfolio yield increases, the level of investment where the income is within the dividend allowance decreases.

Unwrapped portfolios


£5,000 Dividend allowance

£2,000 dividend allowance










Source: Technical Connection


Under Sections 4 and 5 of the Trustee Act 2000, trustees are required to ensure the investments are suitable and diverse for the beneficiary’s needs. It also states that "proper advice" is sought before investing, and this is where your skills as a financial planner comes into play.


Whether trusts are written on a discretionary, interest in possession or an absolute basis, they are still a great financial planning tool, which most people use to control and protect family assets. Whether it’s mitigating Inheritance Tax (IHT), passing assets on while maintaining some control, or providing protection when someone is too young or incapacitated to handle their own affairs. Trusts can also be used to pass on assets via a will, and to avoid intestacy rules, making them great tools for financial planning.
Investment bonds are an ideal asset for trustees to use given their simple administration, 5% tax deferred withdrawals, and flexibility through segmentation. To discuss in more detail, and find out how Sanlam can help, please contact your Account Director.

04 February 2020
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