Real case example of the effective use of a Trust Declaration to save tax.
The following is a real case example how to use a Trust Declaration to save tax.
Finance changes with typical earnings, one rental property and Trust Declaration.
Assume the following based on the figures for tax year 2019-20
- Personal allowance of £12500
- Higher 40% tax band starts at £50000
Background information for rental business:
Rental income from one property £8500
Other expenditure costs £1500
Profit without deducting finance costs £7000 (real profit £2500 prior to changes)
Finance costs £4500
Total income without deducting finance costs £55000
The tax payable to HMRC on the rental income for tax years 2019-20 and 2020-21 is shown below
Notes – Trust Declaration to save tax
(a) The total income of £55000 for tax year 2020-21 will be £5000 above the £50000 child benefit threshold. The benefit is reduced by 1% for each £100 above the threshold and therefore the reduction for £5000 is 50%.
(b) A Trust Declaration was supplied by Tax Landlord Ltd at the start of the 2019-20 tax year. The spouse income was only £5500 a year and by utilising the Trust Declaration to apportion the full 100% rental income reduced the tax to zero and remains the same in 2020-21.
(c) Based on the same figures if a spouse, partner or family member earns less than £43000, but above the personal allowance of £12500, by utilising a Trust Declaration to apportion the full 100% rental income to that person reduces the tax to just £500 per year and remains the same amount for 2020-21. The savings are £775 for 2019-20 and £1000 for 2020-21 and the following years.
(d) If a spouse, partner or family member has no income or any income up to £10000, using the same figures, and by utilising a Trust Declaration to apportion the full 100% rental income to that person, reduces the tax to zero for 2019-20 and remains the same for 2020-21.
Important – Trust Declaration to save tax
Please examine your income and rental profits and try and determine whether a Trust Declaration may be suitable. I am happy to advise based on your personal circumstances. The cost of a Trust Declaration is just £39 which includes advice on completing the documentation and the additional service of any later guidance and clarification on any issues concerning its application.