By Duncan Mitchell-Innes, Senior Associate in Private Client at Wimbledon.
HM Revenue & Customs (HMRC) is currently proposing that each person will have a 'settlement nil-rate band' in addition to their standard nil-rate band (NRB) for inheritance tax (IHT).
The plans are an adjustment of its proposal last year that a person's NRB would be split between each trust they set up. HMRC made the initial proposal ostensibly as part of a plan to simplify the way that relevant property trusts are taxed. The aim of the proposal was the practice of establishing multiple pilot trusts to mitigate IHT.
HMRC's plans did not progress due in part to significant industry criticism of them and the practical problems they would present for trustees. HMRC have therefore now launched a new consultation, again with pilot trusts firmly in their sights. The new plan is for a 'Settlement NRB' to apply in addition to a person's standard NRB so that the settlement NRB will be divided amongst the trusts set up by a settlor. The settlor will have to make a statutory declaration to their trustees detailing the division of the Settlement NRB between the various trusts they might have set up.
The Settlement NRB is due to be the same amount as the personal NRB and will change in tandem with it.
HMRC have also said that the planned rules would only have effect for IHT charges from 6th April 2015. However, in order to avoid last minute planning, HMRC have also said that the rules would apply to new trusts, converted trusts or additions to trusts made after 6th June 2014.
We can advise on trusts and tax planning in the current climate - please do contact us if we can be if assistance.
For related or further information, please visit Wealth Protection
To contact Duncan, email Duncan Mitchell-Innes