5h March 2006

4.5 million people hit by budget changes to trusts

Figures released by Skandia, a leading long-term savings company, suggests that the proposed changes to the inheritance tax treatment of interest in possession trusts and accumulation and maintenance trusts could affect one in ten UK adults. Skandia says that around 4.5 million insurance policy trusts will need reviewing and probably updating in light of the changes. In addition, it is likely that millions of wills will need to be reviewed and updated at the same time.

Skandia says there has been no consultation on these proposed changes and as a result there could be many unintended consequences. For example, forcing assets to be sold to pay tax on first death will be a disaster for ordinary families and forcing beneficiaries to get outright entitlement at age 18 when they may be financially inexperienced will be a disaster for social policy. This could be avoided by postponing implementation and consulting now.

Colin Jelley, head of tax and financial planning at Skandia and chairman of the Association of British Insurers (ABI) product tax panel, comments:

“This year’s budget was billed as being ‘tax neutral’. The reality is that it contained the most significant changes to inheritance tax since it was introduced in 1986 and will affect one in ten UK adults.

“The proposals have not been properly thought through and there could be too many unintended consequences. Forcing beneficiaries to get outright entitlement at age 18 simply fuels the conspicuous expenditure of teenage alpha males. A consultation period is needed to help Government avoid these pitfalls.”