One of the goals of the proposed rules was to prevent multiple trusts being set up on different days, each with its own nil rate band below the £325,000 inheritance tax (IHT) limit. This strategy has proved popular with many advisers and clients over the years, as the tax savings were potentially significant. The Government will still target this activity but will look for alternative ways of achieving this.
Prior to today, any trusts set up prior to 6 June 2014 would not have been impacted by the rule change unless they added new property to the trust. Advisers have been cautious not to touch trusts set up prior to this date so as not to remove any tax advantages. Further guidance is needed on what future advice should be.
Rachael Griffin, head of technical marketing at Old Mutual Wealth, comments:
“This appears to be a u-turn on the Government’s previous position. This is potentially good news in terms of removing the administration burden for the settlors of trusts, but advisers face a period of uncertainty regarding what they should do with existing trusts.”
Autumn Statement 20142.73 Inheritance Tax and trusts – Following consultation launched after Budget 2014, the government will not introduce a single settlement nil-rate band. The government will introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the calculation of trust rules. (Finance Bill 2015)