HMRC has been looking at ways of simplifying the inheritance tax system.
Nick Barnes, Head of Research
Inheritance Tax (IHT) and trusts
HMRC has been looking at ways of simplifying the inheritance tax system as it relates to trusts over the past couple of years. The third and most recent consultation, which ended on 29th August, has proposed changes to the current charges system which could have significant impact for anyone owning assets in trust.
What is the current situation?
It is currently possible for an individual to give away up to the Nil-Rate Band IHT Allowance (£325,000 for the tax year 2014/15) in any seven year period without incurring an IHT charge. Trusts can also make use of a Nil-Rate Band allowance in determining the IHT payable:
Trust assets with a value below the Nil-Rate threshold are not subject to the 10-year anniversary and exit charges when they leave the trust. Prior to 2006 certain trusts fell outside these rules, as follows:
Read more in the full report...
What are the proposed changes?
HMRC has proposed the following changes:
Read more in the full report...
What are the potential implications for you?
The proposed changes could have substantial negative implications for trusts and those who intend to set up a trust. In particular, anyone with multiple trusts could find themselves faced with a higher tax bill than previously. Many people may have set up trusts without being fully aware of the implications, for example in connection with life assurance.
The taxation of trusts is an extremely complex area and it is highly recommended that you consult with a specialist tax advisor in order to ascertain what, if any, action should be taken in response to the proposed changes. This applies equally to the changes already introduced regarding the tax treatment of offshore remittances used as collateral for obtaining and servicing loans in the UK.