Investments  

Autumn Statement U-turn on trust IHT bands

The government has U-turned on plans to apply a single nil-rate band for trusts to prevent gaming of the system to avoid inheritance tax, with the Autumn Statement revealing today that this will not come into effect in April 2015.

At the Budget new rules were proposed to prevent multiple trusts being set up on different days, each with its own nil rate band below the £325,000 inheritance tax limit.

This strategy proved popular with many advisers and clients over the years, as the tax savings were potentially significant. The government stated it will still target this activity, but will look for alternative ways of doing so after consultation responses persuaded it to change course.

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The full text of the Autumn Statement read: “Following consultation launched after Budget 2014, the government will not introduce a single settlement nil-rate band.

“The government will introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the calculation of trust rules.”

Prior to today, any trusts set up prior to 6 June would not have been impacted by the rule change unless they added new property to the trust.

According to Old Mutual Wealth, advisers have been cautious not to touch trusts set up prior to this date, so as not to remove any tax advantages. The firm called for further guidance on what future advice should be.

Rachael Griffin, head of technical marketing at OM Wealth, stated that this appears to be a U-turn on the government’s previous position.

“This is potentially good news in terms of removing the administration burden for the settlors of trusts, but advisers face a period of uncertainty regarding what they should do with existing trusts.”

Also following an informal consultation, plans to extend tax relief to pension contributions made by those over the age of 75 - a cohort which may begin to contribute more extensively in future in the wake of pension freedoms - were shelved.

peter.walker@ft.com