Concerns a tax planning arrangement was being abused
HM Revenue & Customs (HMRC) has confirmed that new proposals for a single nil rate Inheritance Tax (IHT) band for trusts will not be applied to existing trust arrangements, where no further assets are added or variations made to that trust.
Setting up multiple trusts on different days, each with its own nil rate band below the £325,000 IHT limit, has proved a popular wealth planning strategy for many individuals over the years. HMRC were concerned this tax planning arrangement was being abused, so they set about a period of consultation on how they could close down this practice by introducing a single nil rate band for all trusts created by the same individual.
It was feared the new proposals would be retrospective and HMRC would introduce a single nil rate band across all existing trusts. This would have meant some existing trusts facing a tax charge for the first time at the 10-year periodic charge point.
HMRC have proved to be pragmatic in their approach by proposing to leave existing trusts alone. Trusts set up prior to 6 June 2014 will remain under the current arrangements, creating a dual IHT regime for trusts. The proposed changes will take effect from 6 April 2015, and will only apply to trusts set up on or after 6 June 2014.
However, trusts created before 6 June 2014 are not completely out of reach. If any trust has additional assets added to it or where it becomes a relevant property trust on or after 6 June 2014, the change will bring that part of the settlement into the new regime. If this is applicable to your particular situation we could help your preserve the benefits of your existing trusts. For example, if you have more assets to add to your trust, the creation of a new trust may be more beneficial than adding it to an existing one.
With IHT on death set at a rate of 40%, using trusts could still be an attractive option for many families, despite the maximum charge of 6% every 10 years. Trusts continue to offer many advantages, such as no probate and more certainty and protection.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.