Lost among the headline announcements made in yesterday’s (8 July) summer Budget was confirmation that the use of multiple nil rate bands on multiple trusts can continue.
Rachael Griffin, head of technical marketing at Old Mutual Wealth, explained the chancellor’s statement reinforced the government’s intention that multiple trusts should continue to benefit from multiple nil rate inheritance tax bands, provided they are set up and topped-up on different days.
If each trust is less than £325,000 then there is no IHT to pay, she noted.
“The recent changes made to trusts to help simplify the periodic charge calculation will also remain in place, and will help to make life easier for those approaching their first 10 year anniversary point.”
An HM Revenue and Customs statement published yesterday read that the new rule about same day additions to trusts created before 10 December 2014 will not apply to a will executed before that date but this exclusion will be limited to deaths before 6 April 2017.
Legislation will be introduced in Summer Finance Bill 2015 to remove the requirement to include non-relevant property in the calculation of the rate of tax under section 66 (the 10-year anniversary charge) and sections 68 and 69 (exit charges) for rate where appropriate for both sections.
At last year’s Autumn Statement, George Osborne U-turned on plans to apply a single nil-rate band for trusts to prevent ‘gaming of the system’ to avoid inheritance tax.
At the 2014 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.
Ms Griffin commented that the use of multiple nil rate bands on trusts had been widely debated over the last couple of years, with HMRC appearing to u-turn on its previous announcement, leaving advisers and customers confused.
“Today’s confirmation, and the subsequent legislation (expected shortly), will help mark the end to this period of uncertainty.”