Inheritance Tax payments to increase under new proposed plans

Plans proposed recently by Government and supported by HM Revenue and Customs will see the amount of inheritance tax payable by individuals paying capital into trusts increase following the introduction of a change to the current seven year system.  William Ware, Private Client Consultant, explains what these changes mean for you and how you can prepare for the future.

“In the past it has been possible to gift into trust property up to the Inheritance Tax nil rate band, £325,000, every seven years,” begins William.  “After this seven year period another trust could be set up, again to the value of the nil rate band, without any inheritance tax being payable.

“The changes that will be brought in with next years Budget will abolish this seven year rule for trusts and will limit the total gifts into trust that an individual can make in a lifetime to just one nil rate band’s worth of £325,000.  The announcement has caused widespread concern amongst professionals and clients alike, as the provisions are quite savage and do not only apply to trusts set up after the Budget next year.”

William continues, “Unfortunately the changes are being backdated to any trusts created on or after the 6th June 2014 in order to prevent any last minute trusts being made in the run up to next years Budget.  Individuals must be prepared and have the correct historical documentation of gifts that have been made into trust over their entire life, taking into account the fact that there may need to be time spent on complex calculations where perhaps multiple trusts have been set up in the past and gifts are still being made into them.

“We would recommend that no further transfers into trusts should be made without consulting a tax advisor first,” advises William.  “This includes bespoke trusts prepared by solicitors and off-the-shelf trusts facilitated by the financial services industry.”

William concludes, “The good news is that ordinary gifts to individuals, or the so-called potentially exempt transfers or PET’s, remain unaffected by the changed, and it is still government policy to encourage the freedom of movement of capital.”

If you would like advice on Inheritance Tax, trusts and the impending changes, then do contact William or the Private Client Team on 01329 288121 or visit their section of the website here.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.