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13/06/2014

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. This will create demand for financial advice to ensure thousands of existing trust arrangements are not caught by the new rules. Despite these changes, trusts will remain a valuable tool for advisers to use when carrying out estate planning for their clients.

A new consultation paper published by HMRC, called Inheritance Tax: a fairer way of calculating trust charges, clarifies the Government’s proposals and advisers need to be aware of how they can advise their clients if this new dual IHT regime for trusts comes into force.

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 advisers and clients over the years. HMRC were concerned this tax planning arrangement was being abused, and set about consulting with the industry on how it 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.  Advisers have the opportunity to help their clients preserve the benefits of their existing trusts. For example, if a client has more assets to add to their trust, the creation of a new trust may be more beneficial than adding it to an existing one.

Although it may no longer be possible for advisers to use multiple nil rate bands, advisers should still consider trusts as a core part of estate planning. Set up in the right way, clients can still benefit greatly. With inheritance tax on death set at a substantial 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 over a will for estate planning purposes, such as no probate and more certainty and protection.

Rachael GriffinRachael Griffin, head of technical marketing at Skandia, comments:

“HMRC has been pragmatic in its proposals. With the right advice it is possible for existing trusts to remain unaffected preventing thousands of trusts becoming liable to tax, avoiding a headache for both clients and advisers. Trusts will continue to offer advantages in estate planning compared to relying solely on a will to pass assets on. Advisers can add value by ensuring the tax efficient benefits are maintained and the new rules are applied correctly.”

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com

Notes to editors:

Quilter is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

On a ‘go forward basis’, Quilter oversees £ 111.6 billion in customer investments (as at 31 March 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset and single strategy investment solutions; and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Old Mutual Wealth’s multi-asset investment solutions business.

The Quilter businesses will be re-branded to Quilter over a period of approximately two years following separation from Old Mutual:

  • Intrinsic to Quilter Financial Planning
  • Private Client Advisers to Quilter Private Client Advisers
  • The Multi-Asset business to Quilter Investors
  • The UK Platform to Quilter Wealth Solutions
  • The International business to become Quilter International
  • The Heritage life assurance business to Quilter Life Assurance
  • Quilter Cheviot will retain its name.

On 19 December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Quilter is part of Old Mutual plc, a FTSE 100 group that provides investment, savings, insurance and banking. For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of £2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.

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