What is the Rysaffe principle and how does it help me?
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The Rysaffe principle is based upon a court decision between HMRC and a Trust company that was named Rysaffe Trustee company.
It allows people to set up trusts on different days, and each trust would get it sown Nil rate band allowance. For people who are placing money into trusts during lifetime, this has a beneficial impact.
Let's say you have three children, and you decide to set up three trusts. You set these up on Monday, Tuesday and Wednesday and place£200,000 pounds into each joint settlor trust with your spouse.
The first trust that you set up would have a Nil band allowance of £650,000 for initial settlement and periodic charges and putting £200,000 in there would then utilise£200,000 of that allowance.
The second trust would then have an allowance of £450,000 for both initial settlement and periodic charges.
If the last trust also gets £200,000, that trust would only have an allowance of £250000.
So, effectively in 10 years time, if you've placed £200,000 pounds into that last trust, it would very likely after investment growth have a periodic charge because the allowance would only be £250,000.
However, if you add up the periodic charges allowances for all three trusts, ( £650,000+ £450,000 + £ 250,000) you have an allowance £1,350,000 for periodic charges instead of £650,000 if you had only used one trust.
This would save thousands over the years if money was left in the trusts over a long period in time.