
James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Author: James F. McDonough
Date: May 1, 2015
Of Counsel
732-568-8360 jmcdonough@sh-law.comThe differences in tax planning are the direct result of a trends or a structural changes in tax law. Clearly, the trend is against the accumulation of wealth inside of trusts.
Trusts were a vehicle in the UK and the US for the accumulation of wealth for many years due to more favorable trust income tax rates. In 2006, the UK imposed a charge on trust principal of 6% to be paid every ten years. In addition, the UK imposed a transfer tax of 20% on every transfer in excess of £325,000 (the “Nil Band”). UK tax planning was forced to discontinue the extensive use of trusts because these toll charges would reduce principal significantly.
The UK corporate tax rate in 2012 was 24% for large corporations and 21% for small corporations in 2012. The individual UK tax rate was 50% and 45% in 2012 and 2013. The tax rate has declined to 20% for 2015 for both large and small corporations. It is easy to understand the renewed interest in using corporations to shelter income.
The US attack on trusts proceeded in a different manner. The US burdened trusts with the highest income tax rate (39.6%) and the tax on net investment income (3.8%) where income exceeded $12,300. Although the unified credit has increased, the income tax burden on trusts discourages excessive accumulation of income.
Planners in the UK gravitated to the use of corporations and limited partnerships with different classes of interests. In the UK, an outright gift escapes the 20% charge that would apply to a gift to a trust; however, a donor must survive seven years for the gift to escape UK Inheritance tax. Using outright gifts to the next generation and the Nil Band for gifts in trust, wealth transfers are being accomplished.
The ownership interests are a mix of redeemable preferred interests to the parent, income interests and redeemable interests to the children. The entity pays tax at a lower corporate rate. There is a zero income tax band up to (approximately) £34,000 so that distributions to children can escape income tax. The UK taxes income accumulated in a trust for a child under age 18 at a parent’s tax rate, somewhat similar to the US Kidde Tax. The UK tax provision does not apply to family investment vehicles so the directors may declare a dividend on a particular class of shares when a child attains age 18. This technique may not be acceptable in the US, however, it shows that culture and attitude toward commercial transactions influences what can be done.
What is clear is the bias is against trusts on both sides of the Atlantic.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Author: Brian D. Spector
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Author: Christopher D. Warren
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
Author: Scott H. Novak
On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]
Author: Matthew F. Mimnaugh
Breach of contract disputes are the most common type of business litigation. Therefore, nearly all New York and New Jersey businesses will likely have to deal with a contract dispute at least once. Understanding when to file a breach of contract lawsuit and how long you have to sue for breach of contract is essential […]
Author: Brittany P. Tarabour
Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]
Author: Christopher D. Warren
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!