A guide to investment for 2 A guide to investment for trustees

This guide is designed to highlight some of the key aspects of investment for trustees. Trusts are a complex area. For more detailed information about trusts, you should consult a financial or legal adviser. Technical terms highlighted in bold text in this document are explained in the glossary on page 18. Quilter has taken the utmost care in the creation of this document but does not accept liability for any loss resulting from action taken or refrained from being taken due to the information in this or any related document. There are many types of trusts available and this guide provides an overview of the role of the and looks at the main types of trusts available. It does not consider, for example, special trusts or pension trusts. We regularly update our literature; you or your financial adviser can confirm that this February 2021 version is the latest by checking the literature library on our website platform.quilter.com Quilter 3

Contents

Introduction ______4

Trustee act 2000______5

Types of trust______8

Taxation of trusts______10

- Bare trusts ______10

- Interest in possession (IIP) trusts______11

- Discretionary trusts______13

Trustee reporting______15

Trust investments______16

Glossary of terms ______18 4 A guide to investment for trustees

Introduction

There are many considerations for trustees and their financial advisers when considering the investment strategy of a trust.

These include: Each area needs to be considered in isolation as well as part of a the financial objectives of the trust bigger picture. the tax status of the trust and We have focused on these key areas its beneficiaries but would stress that advice is the permissible investments required in all aspects of trust available to the trustees planning and trust management, and this guide is not fully exhaustive of all the legal requirements of the the issues, risks and opportunities. trust provisions. Quilter 5 6 A guide to investment for trustees

Trustee Act 2000

The Trustee Act 2000 (the Act) was introduced to improve and update the existing provisions which had become increasingly complex and out of date. The changes mean trustees are required to be more proactive in the running of the trust and seek advice where required.

The Act came into force on 1 February To complement these less restrictive 2001 in England and Wales only. Since investment powers, the Act facilitates 29 July 2002 it has also become more effective trust administration. applicable in Northern Ireland. The For example, the trustees can Charities and Trustee Investment delegate certain decision-making (Scotland) Act 2005 applies in functions that do not relate to the Scotland and although there are some distribution of trust assets or the differences, the general principles are appointment/dismissal of trustees. broadly similar. Similar legislation These fiduciary powers (i.e., powers to applies in the Isle of Man under the administer the trust) include, where Trustee Act 2001. appropriate, delegating the The previous Act, the Trustee management of investments to an Investments Act 1961, imposed agent, such as a discretionary limitations on the differing types of fund manager. Such a situation investment that trustees could select. would require the trustees to give Now trustees can make an investment written guidance to the agent on how of any kind, as if they were absolutely the investment management should entitled to the trust assets. This be exercised in the best interests of power is subject to any restrictions the beneficiaries. This would include imposed in the trust deed. the desired balance between capital growth and income, any ethical The Act also introduced the need for considerations, asset allocation, risk any investment selected to satisfy the profile, investment term, use of tax standard investment criteria: this is exemptions and reliefs and easy basically a combination of suitability access to an appropriate level of cash. and diversification (see page 6). The fundamental principle for Trustees are not liable for acts or trustees to consider is whether by defaults of an agent unless they, acquiring or retaining any investment the trustees, have failed in their duty they are able to properly discharge of care in the selection of such their duties under the Act with an agent. regards to its suitability, the need for The Act also states that professional diversification and taking advice at trustees, agents, nominees, outset and at review. custodians and investment advisers can receive payment for their work even if there is no specific clause in the trust allowing this. Similarly, expenses properly incurred when acting on behalf of the trust can be reimbursed. Quilter 7

The trustees can delegate certain decision-making functions that do not relate to the distribution of trust assets or the appointment/dismissal of trustees.

The statutory The ‘standard The duty to obtain duty of care investment criteria’ ‘proper advice’

In order to ensure that trustees Trustees must not only make Before making or changing an exercise the wider powers given to sure that any investment is suitable investment, trustees have a duty to them in a responsible manner, for the trust but also consider, obtain and consider proper advice a statutory duty of care was created where appropriate, the need for from somebody who they under the Act. diversification of investments. reasonably believe to be qualified and competent to give such advice The duty states that a trustee must The suitability of different types of on investment matters. The only always exercise such care and skill investments as trust assets will be exception to this requirement is as is reasonable in the gauged by numerous factors. where the trustees are certain that circumstances. In particular, As well as their individual qualities it is unnecessary (e.g., the trustees a trustee who has special in providing growth and income for possess the necessary skills and knowledge or experience is a trust, tax efficiency and low-cost knowledge) or uneconomical (e.g., expected to use it in their capacity administration are important the amount to be invested is very as trustee. A higher standard of issues, as both can enhance returns small) to take advice. care will therefore be required from to beneficiaries. Investment bonds a professional trustee. and collective investments can In most instances, trustees will often provide a suitable way to need to take advice, especially It is, however, possible for the duty invest indirectly in stocks and where there is no existing of care to be excluded or modified shares, although other assets may experience or knowledge in by the trust instrument. offer suitable alternatives. these areas. Whilst this statutory duty replaces In selecting suitable investments, any duty of care that the trustees will also be required to may have previously applied, consider the beneficiaries’ position trustees remain subject to the in respect of those that can benefit existing fundamental duties, such today (such as those with an as acting in the best interests of all interest in possession) versus those beneficiaries, avoiding any conflict that may benefit in the future. of interest and complying with the terms of the trust. The size of the trust fund will be relevant as far as diversification is concerned. Additionally, trustees are obliged to review the trust portfolio from time to time and consider whether the investments still satisfy the standard investment criteria, and therefore whether they should be altered in any way. 8 A guide to investment for trustees

Types of trusts

A trust usually comes into existence in one of two ways – either it is a settlement created by an individual during their lifetime or it is a trust created on death by a will or by rules. Intestacy is when someone dies without having made a valid will. In such cases, a statutory trust is imposed so that the rights of those entitled to benefit from the estate of the deceased person can be safeguarded. Quilter 9

Trusts are created for various reasons. Under a bare trust, assets are held by These include the control of gifted the trustees for one or more named assets, i.e., who might receive them beneficiaries, usually minors, who are and when, or to reduce potential absolutely and unconditionally entitled tax liabilities. to any income arising and the capital. The trustees usually hold the assets on Generally a trust will provide for behalf of the beneficiaries until they one of the following: are legally entitled, and able, to the beneficiaries to have an absolute receive it. right to income and capital – see bare Under an interest in possession trust on page nine trust, one or more named the beneficiaries to have an beneficiaries have an immediate right entitlement to income only to income (i.e., an interest in possession) and any income arising the beneficiaries to have a right to within the trust is taxed as their own. income but the trustees to have the Under such trusts, a ’s power to advance capital to them, or interest can sometimes be changed in the trustees to have discretion over favour of someone else, either by the whether they pay income or capital to trustees or automatically on the death any beneficiary. It is vital to of the beneficiary. understand the type of trust you are Under a , the a trustee of and what the trust allows payment of income and capital is at the you to do before attempting to decide complete discretion of the trustees. on an investment solution. There are often no named There are special provisions for beneficiaries. Beneficiaries will be trusts created on death under a Will, selected from one or more classes which include: specified in the trust wording (for example, ‘my grandchildren’ would take Age 18 to 25 trusts account of existing grandchildren and those unborn at the time the trust was Trusts for Bereaved Minors established). No beneficiary is absolutely entitled to Immediate post death interest trusts any of the trust fund and as such it Each has special tax considerations does not form part of any one which are not covered in this guide. beneficiary’s estate. This may provide Please speak to your legal or financial a level of protection of the trust adviser about these arrangements. assets against wasteful beneficiaries or third-party claims from non- beneficiaries. The most frequently encountered trusts are: Bare (sometimes known as absolute) Interest in possession Discretionary 10 A guide to investment for trustees

Taxation of trusts

The tax treatment of holding an investment within the trust in question may be a major influence on the trustees’ choice.

There have been considerable A trust will generally receive income in Where the trust is created by a living changes in trust taxation in recent the form of savings and dividend parent, there are anti-avoidance years, notably the changes to capital income. Depending on the type of rules that apply if the income (per gains tax (CGT), the changes to the trust, the way income and dividends parent per child) exceeds £100 gross inheritance tax (IHT) treatment of are taxed will differ. A trust may also each year. This means that tax will be trusts introduced in 2006 and the make capital gains. These are taxed assessed on the parent, even if the revised treatment of dividends from differently according to the type of income is retained or paid to the April 2016. trust. Where trustees realise gains, beneficiary, and declared on their they have a capital gains tax allowance self-assessment. Trustees of express trusts (trusts of £6,150 for 2020/21 (which is created formally by someone using a currently half of the exemption for written deed) must register the trust Capital gains tax - (where the individuals). Where an individual using the HMRC Trust Registration beneficiary is a minor or adult) creates more than one trust, this Service. They must first register the Any gains realised by the trustees are allowance is split between these trust when they incur a UK tax charge. assessed for tax on the beneficiary so trusts subject to a minimum of £1,200 that their full annual CGT allowance Regarding self-assessment, trustees per trust. and £12,300 for 2020/21 can be used. generally have to complete HMRC form The anti-avoidance rules do not SA900 each tax year. Trustees are apply to capital gains. assessed for tax in their capacity as Bare trusts trustees, not as individuals. Trustees Income tax - (where the beneficiary do not have any income tax allowance is an adult) Inheritance tax - (where the beneficiary is a minor or adult) and the CGT allowance is usually one Where the beneficiary is an adult, half of that available to an individual. he or she is responsible under The value of the trust fund becomes part of the beneficiary’s estate and The rates of tax payable depend upon self-assessment to report trust the transfer by the settlor is either an the nature of the trust. Moreover, income and gains to HMRC, whether exempt or potentially exempt there are anti-avoidance rules which received by the beneficiary or transfer (i.e., a gift). may mean that the settlor (the person retained by the trustees for further who created the trust) may be taxed investment. If the minor beneficiary of a bare trust instead of the beneficiary or trustees, dies, the beneficiary’s parents (if alive) where income and gains arise inside Income tax- (where the beneficiary will inherit their estate under the the trust. is a minor) intestacy rules, as a minor cannot make a will. The HMRC website outlines trustees’ Where the trust is created by anyone full reporting and record-keeping other than a living parent (see page obligations. Please see 15), all income is taxed as the child’s, www.gov.uk/trusts-taxes/trustees- even if it is not paid to them. Where tax-responsibilities appropriate, tax deducted can be reclaimed by either the appropriate adult or trustees. Quilter 11

The beneficiary of an IIP trust is treated as having received interest and dividends rather than just ‘trust income’.

Interest in possession Capital gains tax (CGT) (IIP) trusts After allowing for the trustees’ annual Basic rate tax payers: CGT exemption, any gain is taxed Income tax (i.e., the beneficiary is at 20% (28% for property gains). entitled to income arising inside 20% (interest) the trust) If the trust capital passes absolutely 7.5% (dividends) to named beneficiaries following the Trust income is taxed on the trustees death of an interest in possession at basic rate (20% on interest and Higher rate tax payers: beneficiary (provided that beneficiary 7.5% for dividends). The trustees must had a qualifying interest in (interest) then distribute the income to the 40% possession), no liability to CGT arises beneficiary. When the beneficiary % (dividends) and the new beneficiaries will receive receives the income, they are also 32.5 the assets at a revised base cost (i.e., taxable. However, they receive a tax Additional rate the value at date of death of the credit equivalent to the tax paid by previous IIP trust beneficiary). This will the trustees. This is then used to tax payers: be based on the market value of the offset their own personal liability to assets at the time. income tax. 45% (interest) If an IIP trust beneficiary dies and Unlike income from discretionary 38.1% (dividends) their interest continues on to a new trusts, income from an IIP trust does beneficiary under the trust provisions, not lose its ‘identity’. The beneficiary this revised value basis, as above, will of an IIP trust is treated as having However, the beneficiary will use the also apply. However, if the interest of a received interest and dividends rather tax credit from the trustees to reduce beneficiary ceases during their than just ‘trust income’. This means that liability. lifetime and other beneficiaries they can use their dividend allowance, become absolutely entitled to the For example: A beneficiary receives personal savings allowance and 0% trust funds, the change of entitlement interest with 20% deducted by the starting rate band to reduce their is considered to be a ‘disposal’ for CGT trustees. A basic rate tax payer will liability to income tax. Where the purposes, with any tax liability have no further liability. A higher rate income falls within these or their belonging to the trustees. personal allowance, the beneficiary tax payer will pay an extra 20% and an can reclaim the tax paid by the additional rate tax payer will pay 25%. A relief known as Hold-over Relief may apply to capital gains tax. This relief trustees. Where the income exceeds The trustees could choose to does not remove the tax but enables these allowances/bands, the income mandate the income payments it to be deferred and passed on to the will be taxable at the beneficiary’s directly to the beneficiary. This way, new beneficiary subject to certain marginal rate: they do not need to submit a trustee conditions being met. Please speak to tax return unless they have other your legal or financial adviser for liabilities (such as capital gains tax). further information. The beneficiary will receive the income gross and will need to pay the applicable rate of tax. 12 A guide to investment for trustees

Inheritance tax (IHT) – trusts Discretionary trusts Taxation of dividend income established before 22 March 2006 distributed to, or for the benefit of, Trustees of discretionary trusts are or created within a will a beneficiary charged income tax at the special The ‘trust’ capital from which an IIP trust rates, after deduction of trust The tax paid by the trustees forms beneficiary has the right to income is expenses. Trustees may usually be part of a ‘tax pool’. treated as being owned by him or her able to choose to distribute savings or The beneficiary is treated as having and forms a part of their estate for dividend income, or to re-invest into received income from the trust net of IHT purposes, even if no income is the trust. Dividends are taxed 45% tax. The source of the income arising and where there is no differently to other forms of income. (e.g., whether it was derived from entitlement to capital. The first £1,000 of taxable income, interest or dividends) is irrelevant. which would otherwise be chargeable The beneficiary may reclaim some tax Inheritance tax (IHT) – at the rate applicable to trusts (RAT), depending on their marginal rate of trusts established on or after is instead chargeable at the basic rate income. This is funded by the tax pool. 22 March 2006 (20%) or dividend ordinary rate (7.5%), The trustees may have to add money The ‘trust’ capital from which an IIP depending on the nature of the to the tax pool where the beneficiary’s beneficiary has the right to income is income. This part of income is known reclaim exceeds the tax already paid no longer treated as being owned by as the standard-rate band. Where by the trustees. him or her following the Finance Act income exceeds this amount, 2006 so it does not form part of their additional tax will be due. Savings and dividend income estate for IHT purposes. re-invested then distributed For a discretionary trust, the RAT for If income is accumulated, the net The trust is now subject to the same income, other than dividends, is 45% distribution (after deduction of the IHT regime as a discretionary trust. for the tax year 2020/21. The dividend trustee rate of tax) will roll up within Entry, exit and periodic IHT charges trust rate is 38.1%. the trust. This will then become can apply, but depending on the additional capital of the trust which, amounts involved the tax due may be Taxation of savings income in whether retained or distributed to zero. No part of the trust fund is excess of the standard-rate band, beneficiaries as capital at a later date, treated as belonging to a beneficiary in the hands of the trustees will not be subject to income tax, but for IHT purposes. Savings income is paid gross. The may be subject to inheritance tax The initial payment by the settlor into trustees are liable for 45% tax. The tax charges (i.e., exit or periodic charges). the trust is a chargeable lifetime would be paid via the trustees’ Capital gains tax (CGT) transfer (unless otherwise exempt) so self-assessment returns. there could be an immediate IHT After allowing for the trustees’ Taxation of dividend income in liability at half the current IHT rates, annual CGT exemption, any gain is excess of the standard-rate band, even on a lifetime transfer. taxed at 20% (28% for property in the hands of the trustees gains). Dividends will be received gross. The dividend trust rate is 38.1%. Quilter 13

Trustees may usually be able to choose to distribute savings or dividend income, or to re-invest into the trust. 14 A guide to investment for trustees

Taxation of life assurance Funds can be switched without gains As a non-income producing asset, being realised and when the trustees year on year, there will be no liability products – investment bonds decide to distribute some of the trust arising to income tax which means the Investment bonds are taxed under assets, they can consider the best way £100 rule mentioned on page 11 is the chargeable events regime. This from a tax perspective to realise the avoided along with potential tax unique taxation regime means all assets. The bond is normally reporting until a chargeable event gains are assessed to income tax and established in a series of policies and gain occurs. not capital gains tax. Additionally, the this would enable the trustees to, for tax charge will vary depending on the example, assign some of the policies circumstances of the investment. For to a beneficiary (aged over 18) so that example, where the settlor of a the beneficiary can realise the gains discretionary or IIP trust is alive and and incur tax at their own rate and UK resident, any chargeable event is not that of the settlors’ or trustees’ if assessed on them. the settlors are dead. At a glance

Type of trust beneficiary Income tax Capital gains tax Inheritance tax Bare* Generally on 10% (18%) or 20% (28%) Part of the beneficiary’s beneficiary* on beneficiary (surcharge estate applies on property gains) Interest in possession (IIP) 7.5% on dividends 20% (28% for property Not part of estate unless 20% on other savings gains) on trustees created on death or if by a income and non- trust created before savings income 22 March 2006 Discretionary First £1,000 taxed as 20% (28% for property Not part of estate per IIP then 38.1% on gains) on trustees dividends and 45% on other income received in the tax year 2019/20

When the trustee is liable for the tax on encashment of a life assurance policy, the trustee rate of tax is 45%.

* Where the trust is created by the parent of the unmarried minor beneficiary, any income of £100 or more will be deemed to be taxed on the parent even if they derive no benefit from the trust and the beneficiary’s personal allowance is unused. However, for CGT, the full allowance is available and any gains are assessed on the beneficiary. Although life assurance policies are normally taxed on the settlor of a trust, HMRC has clarified that any chargeable event gains under a bare trust will be assessed on the minor beneficiary and not the settlor. The parental settlement rules for income still apply. Quilter 15

Anti-avoidance rules – If the trustees use their discretion to Trustee reporting make an income payment of more income tax than £100 to a minor of a living The register will capture; All UK trusts are subject to anti- settlor, then the parental settlor will details of the trust assets, including avoidance rules designed to prevent be liable for tax on the whole amount addresses and values abuse of the tax laws. These cover If, rather than paying out the income, situations where a settlor or their the identity of the settlor, trustees, the trustees decide to accumulate it protector – as well as any other spouse has retained an interest in and then subsequently use their the trust. The definition of ‘spouse’ persons exercising effective control discretion to pay capital to such a over the trust excludes a former or separated minor, that payment will be treated as spouse and the widow(er) of the an income distribution, up to the identity of the beneficiaries, or settlor. Since 5 December 2005, amount of available undistributed classes of beneficiary. civil partners registered under income in the trust, and the parent The following details are required; the Civil Partnership Act 2004 are settlor will still be taxed accordingly. also included. name Wherever possible, it may be more The general effect of these rules is advantageous for the income to be date of birth that the trust assets will be considered accumulated within the trust and National Insurance number for UK as still being owned by the settlor for capital distributions deferred until residents – with the exception of income tax purposes. Therefore the the minor becomes an adult. For this minors settlor will remain personally liable to purpose, the term minor includes an tax at their highest rate on any income adopted, step or illegitimate child. address and passport/ID number for received by the trustees. non-UK residents. Following the introduction of a flat Investments which are non-income rate of tax for capital gains, the The register will need to be updated producing, for example investment anti-avoidance legislation relating by the trustees each and every year bonds, can be more attractive to CGT has been repealed. in which they have liability to tax in therefore for settlors and trustees in the UK. This includes, but is not circumstances where anti-avoidance limited to, income tax, CGT, IHT and measures are applicable. stamp duty. HMRC trust register Where a parent creates a trust for Where the settlor or a beneficiary is their unmarried minor, there is a To pay their tax liability, liable for the tax, the trustees do not danger that the settlor will be liable trustees must first obtain a need to use the register. However, for tax on the income. Unique Taxpayer Reference this is likely to change with the (UTR). They do this by If trust income is used for the benefit introduction of the Fifth Anti-Money registering the trust with of such a minor, for example under a Laundering directive. HMRC. discretionary trust, this can be sufficient on its own to bring the www.gov.uk/trusts-taxes/ anti-avoidance rules into play. trustees-tax-responsibilities 16 A guide to investment for trustees

Trust investments

Which investment vehicle? Where beneficiaries are able to receive income or capital, the Where a beneficiary has a right to trustees’ investment choice is receive income only, in order to satisfy naturally broader. the main objective of the trust and to comply with the suitability For trustees, the combination of requirement of the Trustee Act 2000, changes to capital gains tax and UK the trustees would need to invest in dividend taxation has increased the assets that produce income. It should complexity and cost of administering be noted that withdrawals from a trust. The dividend changes also investment bonds (even within the 5% mean less income is available for allowance) do not count as income, as distribution to beneficiaries. investment bonds are non-income In addition, further tax changes are producing assets. always likely. Even though the trustees’ main With factors like inflation, interest rate concern will be to ensure income is variations and equity yields to generated, they are obliged to consider consider, trustees need to look the interests of all the beneficiaries. increasingly to tax efficiency and They will therefore need to ensure a reduced administration costs to balance between income-producing optimise investment returns. Use of and capital-appreciating assets, not collectives (such as OEICs) and only for the income beneficiaries but investment bonds are very popular also for those beneficiaries ultimately routes for securing a professionally entitled to the capital. managed portfolio linked to stocks The trustees will need to decide the and shares in a practical, cost- needs of the beneficiaries and the effective and tax-efficient way but actual payments required. there are other options available. Quilter 17

Potential investment vehicles from Quilter

Investment bonds

Investment bonds are non-income or remove the need to use it producing assets, but are subject to completely. A bond will only create a income tax when ‘gains’ are realised. tax liability when a chargeable event They are subject to the special occurs. Under chargeable event rules, provisions applicable to bonds known a gain is taxable on the settlor of a as chargeable event rules. One discretionary trust/IIP trust during benefit of this type of investment is their lifetime and in the tax year of that partial withdrawals up to 5% per death. Only after this point would the annum of the initial contribution do trustees be taxable and be required not give rise to any immediate liability to use the register. to income tax. Moreover they are Instead of creating any gains exempt from capital gains tax. themselves, the trustees could Principally, any realised gains will be consider assigning the bond to the assessed on the settlor of the trust if beneficiaries to encash at their they are still alive, then assessed on marginal rate of income tax. In this the trustees or the beneficiaries case, the trustees would only need to depending on the type of trust and use the register if an inheritance tax who realises the gain. charge applies. Under current rules, using a bond Bonds are normally made as a single could reduce the frequency which the contribution investment and allow Trustees have to update the register, access to a wide range of funds.

UK authorised investment funds – collectives

These are available as a collection of Using these funds means that funds (which can be selected to investment vehicles can be structured provide the appropriate mixture of to suit any trust, although they would income and capital appreciation with involve more tax reporting than bonds the opportunity to use the annual CGT as they produce income (dividend or exemption) or a fund that gives the interest). ability to change underlying Again, these are normally single investments without CGT implications. contribution investments, with access  to a wide range of funds. 18 A guide to investment for trustees

Glossary of terms

Anti-avoidance rules Anti-avoidance rules within taxation law are designed to close ‘tax loopholes’ and limit the opportunities for people to take deliberate measures to avoid tax.

Chargeable The rules under which life assurance policies are taxed. A transaction, encashing a bond event rules which has made a gain, for example, will lead to a chargeable event and result in the issuing of a chargeable event certificate for use in preparing a tax return.

Chargeable lifetime A transfer of value which is made by an individual and is not an exempt or potentially transfer (CLT) exempt transfer.

Discretionary fund A fund manager who uses their own discretion on what assets to sell and buy, and when. manager Normally appointed by the client to act on their behalf.

Disposal When you dispose of an asset, you might be selling it, giving it away, transferring or exchanging it for something else. For capital gains tax purposes, a disposal includes a ‘part-disposal’, which may be the disposal of part of an asset, or an interest or right in the whole or part of an asset. A disposal may give rise to a tax charge.

Entry charge When a chargeable lifetime transfer (CLT) is created, an entry charge equivalent to half the rate payable on death (40% currently) is paid on the transfer of any value above the available nil-rate band (NRB). Previous CLTs will affect the amount of available NRB.

Exit charge Where the entry charge or 10-yearly periodic charge has given rise to an actual payment of tax, an exit charge will be paid on any distributions made by the trustees out of the trust fund. The rate charged is dependent on the entry and 10-yearly periodic calculations but can never be greater than 6% of the trust fund.

Nil-rate band Currently £325,000 (frozen until 2020/21).

Periodic charges Every ten years, the value of the trust will be assessed for tax with a maximum rate of 6%.

OEICs These are types of investment schemes in which money from individual investors is pooled (Open-Ended together into one fund, spread across a range of different investments (otherwise known as a Investment ‘portfolio’) and managed by professional fund managers. OEICs and unit trusts operate Companies) under different legal structures but work in the same way. With OEICs you buy shares and and unit trusts with unit trusts you buy units.

Potentially exempt A gift made by an individual which is not immediately liable to IHT. It only becomes chargeable transfer (PET) if the settlor dies within seven years of making the gift. If the settlor survives for seven years then the transfer is not chargeable.

Qualifying interest The name of the absolute entitlement to the trust income by beneficiaries of: in possession  a trust that was created prior to 22 March 2006 and hasn’t been changed to bring it into the relevant property regime; and  immediate post death interest trusts.

Realised gains Gains can be either realised or unrealised. If you sell an asset at a profit, this is a realised (or losses) gain. In other words it has been changed from a gain on paper into an actual gain. If the asset has gone up in value, but has not been sold, you have an unrealised gain. Such an asset can be described as ‘pregnant with gains’. It means that gains exist but have not yet been delivered. The same also applies to losses.

Tax deducted at source This is the tax deducted on income before you receive it. Quilter 19 This document is based on Quilter’s interpretation of the law and HM Revenue & Customs practice as at February 2020.

We believe this interpretation is correct, but cannot guarantee it. Tax relief and the tax treatment of investment funds may change. Your investment may fall or rise in value and you may not get back what you put in.

Full details of the range of trusts, investment and protection products available from Quilter can be obtained from your financial adviser.

platform.quilter.com Please be aware that calls and electronic communications may be recorded for monitoring, regulatory and training purposes and records are available for at least five years.

Quilter is the trading name of Quilter Investment Platform Limited which provides an Individual Savings Account (ISA), Junior ISA (JISA) and Collective Investment Account (CIA) and Quilter Life & Pensions Limited which provides a Collective Retirement Account (CRA) and Collective Investment Bond (CIB).

Quilter Investment Platform Limited and Quilter Life & Pensions Limited are registered in England and Wales under numbers 1680071 and 4163431 respectively.

Registered Office at Senator House, 85 Queen Victoria Street, London, EC4V 4AB, United Kingdom. Quilter Investment Platform Limited is authorised and regulated by the Financial Conduct Authority. Quilter Life & Pensions Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Their Financial Services register numbers are 165359 and 207977 respectively. VAT number 386 1301 59.

6867/221-0453/June 2021