FTAdviser.com

Advertising

Financial advisers are being urged to take prompt action to advise clients with pre-22 March 2006 trust arrangements who might want to change the beneficiaries of the trust, as the inheritance tax deadline draws closer.

According to Skandia, changes to beneficiaries made after 5 October will generally mean that the trust becomes subject to the inheritance tax relevant property regime, whereas changes made before then will not change the IHT treatment of the trust.

It said this situation applies to interest in possession trusts. One of the principle effects of the Finance Act 2006 is that any interest in possession trust created after 22 March 2006 will be subject to IHT under the relevant property regime and potentially suffer the entry, 10-yearly periodic and exit tax charges that have exist under the discretionary trust regime.

However making changes to the interest in possession trust beneficiaries of trusts created before 22 March 2006 or adding value to the trust can also bring the trust into the relevant property regime.

The changes in 2006 introduced a transitional period which, earlier this year, was extended to end on 5 October 2008.

Until then, the interest in possession beneficiary of a pre-22 March 2006 trust can be changed without bringing the trust into the relevant property regime.

According to Colin Jelley, head of tax and financial planning for Skandia, financial advisers need to take urgent action to advise clients in advance of this deadline if they want to make changes to the beneficiaries to their trust arrangements without causing the trust to be liable for IHT.

He said: "While the changes have been law for a while and most advisers have got to grips with the new regime a key deadline is fast approaching."