What happens when you put a property in a Trust?

For many Indian investors eyeing London property, legacy planning is, with time, becoming as important as capital growth. One of the most effective tools to achieve this is the use of a Trust.

Trusts are often associated with ultra-wealthy families. However, in reality, they are a versatile tool for any investor with property assets. As an Indian investor and homeowner interested in stepping into London’s real estate market, Trusts can be an effective way to manage inheritance and plan for your next generation. This can be done all while maintaining a degree of control.

In simple words, a Trust can be held as both moveable and immovable assets, through property, shares and bonds. At Benham & Reeves India, we offer in-depth guidance to discerning clients considering Trusts for their London properties, whether for tax planning, estate management or smooth transfer of wealth.

Who are the parties involved in a Trust?

As an investor, if you are considering setting up a Trust, understand these three key stakeholders:

The settlor creates the Trust for you and gifts the assets into it, typically, the property owner.

A Trustee is the individual or institution managing the Trust. A Trustee can be either a bank, a Trust company or a solicitor.

A beneficiary is a person or a group of people entitled to the benefits from the Trust. These can be income, capital or both.

In most cases, Trusts are set up for care home costs, divorce, remarriage or to ensure family members receive proper financial support.

How can I set up a Trust?

Setting up a Bare Trust is relatively straightforward. However, remember, mistakes can be costly. Once a property is transferred into a Trust, the ownership is relinquished. Simply put, Trust is a permanent gift.

This is why formal legal and financial advice is crucial before proceeding.

Types of Trusts for property owners

Depending on your long-term and short-term goals, property owners in the UK can choose from different types of Trusts, all with their own tax structure and rules.

Number one is the Bare Trust. In this type of set-up, assets are handed over directly to the beneficiary when they turn 18 (or another specified age). This sort of Trust can even be used to maintain the confidentiality of the beneficiary.

The second type is an Interest in Possession Trust. The beneficiary in this receives income from the assets set up. In most cases, it is rental income. However, they do not have the option to sell or distribute the assets.

A Discretionary Trust is the third type. In this type, Trustees can decide how income or capital is distributed among beneficiaries, as per the Title Deed.

Accumulation Trust allows Trustees to accumulate income to increase the Trust’s capital while making ongoing income payments.

Mixed Trust combines features of different Trusts, offering flexibility and potential tax benefits.

A Disabled or Vulnerable Trust is carefully set up specifically for children or disabled beneficiaries. This Trust offers tax advantages without affecting other social benefits.

Non-Resident Trust, as the name suggests, is for Trustees who reside outside the UK. This Trust comes with unique taxation rules wherever applicable.

When should you set up a Trust?

A Trust can be established while you are living, also known as a living Trust. They can also be set up after your passing, known as Will Trusts. Common instances include:

• Passing assets to the next generation.
• Ensuring minors or vulnerable dependents receive their inheritance.
• Safeguarding your asset while maintaining eligibility for government benefits.
• Protecting assets from creditors.
• Protection against property depreciation and care home fees.
• Securing residency rights for a spouse while ultimately transferring assets to children or beneficiaries.

What happens to a property when put in a Trust?

In simple words, the fate of the property in a Trust depends on the Trust Deed.

However, spouses or partners can reside within the property indefinitely without having any sort of ownership transfer. In most cases, it’s the Trustees who manage ongoing costs. Things like maintenance, council taxes and repairs are usually covered through the income generated by the Trust or, in some cases, by the person residing in the property.

If the beneficiaries decide that selling a property makes sense, the sales proceeds are divided as per the Trust deed’s terms. Depending on what the Deed specifies, the proceeds are distributed or transferred directly to beneficiaries.

Key considerations before adding a property to a Trust

Ensure you choose the right Trustee. As the Trust relies on someone you can genuinely trust, it is crucial to make the right, unbiased choice.

Create the Trust Deed as it outlines inheritance terms and liabilities clearly.

Ensure you inform HMRC. This is applicable to all UK properties and is a mandatory regulation by the government. In case of non-compliance, penalties apply.

The property must be registered with the Land Registry, with additional costs such as stamp duty and legal fees.

Ensure records are maintained. Trustees are required to keep a track of income and transactions for complete transparency and compliance.

Should you put your property in a Trust?

The benefits of setting up a property in a Trust are clear. However, it’s important to take a step back and look at the full picture. Calculate the costs involved, the legal implications, and any tax consequences that may arise. Ensure you consult with a lawyer and financial advisor.

At Benham and Reeves India, our consultants works closely with Indian investors who are exploring different Trust options for their London properties. In addition to this, we offer assistance with choosing the right property, negotiating prices, documentation, furnishings and long-term property management.

Role of Benham and Reeves India

London has long attracted Indian investors seeking first-time investments, holiday homes or portfolio diversification. In fact, recent data shows that Indians have overpowered the British in terms of property ownership within the UK.

Since 2011, Benham and Reeves India has assisted savvy buyers and landlords with seamless property acquisitions, lettings and management. With two offices in Delhi and Mumbai, our consultants work hand-in-hand with the London team to guide clients through every step. This includes selecting the right property, professional lettings and income management.

Connect with us today for no-obligation consultations and learn how Trusts can protect and grow your London property investments.