These trusts are liable to a charge to Inheritance Tax every ten years. Until 6th June 2014 each trust deed had its own Nil Rate Band. An individual (known as “the settlor”) could therefore create a number of trusts (also known as settlements) and each would have its own nil rate band (NRB). In simple terms any value in excess of that is taxed at a maximum rate of 6%. The rules for calculating the actual amount of tax are complex and require detailed records to be kept and maintained.
HMRC’s new proposal
HMRC wants to simplify this. More importantly HMRC proposes that a settlor should only have one NRB – to be known as a Settlement Nil Rate Band (SNRB) – which s/he can allocate on a percentage split between all trusts they create. The SNRB will increase in value in line with the normal NRB and the proposal will include trusts created by wills.
The settlor will have to elect (by way of an HMRC form) the share of the SNRB allocated to the trust before the first ten year anniversary.
Once the first ten year anniversary has passed, an election cannot be varied unless further assets are added and there is any SNRB available. It will also not be possible to recycle the SNRB once a trust has been wound up and if any SNRB has not been allocated before death the executors have two years from the death within which to allocate it.
These changes will apply to all trusts created and to any additions to existing trusts on or after 6th June 2014.
If you already have a trust, you should consider:
These will help your solicitor, financial adviser and/or accountant advise on what further action to take.
If you don’t yet have a discretionary trust in place
The changes will not mean discretionary trusts can no longer be created. For many they can be particularly useful as a way of:
Conclusion
HMRC’s suggestions are still only proposals. The consultation ends in August with the intention that the changes be introduced in the Finance Act 2015. The changes will severely limit the opportunity for using trusts to mitigate tax, however trusts will still have their uses and some will not be affected, including trusts for disabled or vulnerable individuals.
If you have a query about discretionary trusts, the protection of family assets or you want to review your will, please contact Alex Elphinston on 0121 214 3584 or alex.elphinston@anthonycollins.com.
How does a media-savvy employer ensure a season of festive cheer but without mishap, damage to their reputation or harassment and bullying claims?
Providers need to be alive to the risk of contractors becoming insolvent and how to limit the resulting inevitable disruption.
Housing associations must continue to deliver core functions effectively and compliantly notwithstanding the uncertainty over the standards to which you will be held in the future.
Over the last few years the meaning of “asset management” has changed from being all about repairs to understanding that assets might not stay in an organisation forever.
The Grenfell Tower tragedy has understandably prompted a fundamental reconsideration of how building safety is approached for High-Rise Residential Buildings.
Results from the latest three-yearly valuation of the Local Government Pension Scheme (LGPS) are starting to trickle through.
The potential for Brexit with or without a deal causes uncertainty, and credit rating agencies do not like uncertainty.
Let’s face it, Wills are underappreciated and often overlooked. In fact, around 54% of the British public do not have one!
A recent case throws light on the scope of the exemption for “land transactions” from the need for an OJEU tender process.
A leaked report into maternity services at the Shrewsbury and Telford Hospitals NHS Trust revealed by The Independent has been described as the “largest maternity scandal in NHS history”.
To receive invitations to our events, as well as information and articles on legal issues and sector developments that are of interest to you, please sign up to Newsroom.