Inheritance Tax and Trusts

The Treasury has proposed new inheritance tax (IHT) rules for trusts.

Trusts are regularly used for estate planning for two main reasons:

The IHT treatment of trusts is arcane, to put it mildly. It is one of those areas of taxation where at times the professional fees needed to calculate the tax due can match or exceed what ends up with the Treasury. The 2012 Budget proposed that there should be consultation on simplifying the rules, which mostly dated back to the era of capital transfer tax.

As often happens when the words ‘simplification’ and ‘tax’ appear in the same sentence, HMRC’s ideas for making things simple looked to those on the other side of the fence as a mechanism for increasing revenue. In this instance the difference of opinion resulted in a trio of consultation documents, the last of which arrived in June. This largely marks the end of the consultation process: the latest paper makes it clear that while new legislation will not begin to operate until 6 April 2015, it will then apply to any trust established or added to from 7 June 2014.

The good news is that it appears trusts created before that date will benefit from some genuine simplification without suffering from the less welcome revisions that apply to new trusts. But be warned – once the legislation eventually emerges, you may well need to review your estate planning.

Tax laws can change, the Financial Conduct Authority does not regulate tax and trust advice.