Pre-Budget report reaction: Julie Hutchison
The announcement of a freezing of the nil-rate band at £325,000 for 2010/2011 for inheritance tax was not the main IHT headline for advisers from the pre-Budget report.
As ever, it was necessary to wait until the detailed press notices were released, and there were two specific types of so-called ‘IHT avoidance’ which were targeted with draft legislation, which the government said will be included in Finance Bill 2010.
Both were measures designed to avoid the relevant property regime, for example to avoid the 20 per cent IHT charge which applies to gifts to most types of trust of more than £325,000.
The first targeted the situation where a client purchased a trust interest, possibly an “excluded property” trust interest.
The second targeted a future interest (a reversionary interest) which the settlor of the trust or the settlor’s spouse had a right to (or indeed where it was purchased).
In both cases, the draft legislation seeks to bring future such arrangements within the report, with effect from 9 December.
This approach taken to ‘IHT avoidance’ shows that the government is willing to target specific schemes with new legislation. It remains to be seen what further steps the government wishes to take in this area.
At time of writing, no further details were available in relation to this statement posted on the Treasury website: “The government announces it is also examining wider solutions to the problem of trusts being used to avoid inheritance tax charges.”
What will these “wider solutions” be? Time will tell, but early detail rather than vague statements is required.
Julie Hutchison, is head of estate planning for Standard Life