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Outrage over Budget
crackdown on trusts
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Published:
07:00
Tuesday 28 March 2006
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| By:
,
Editor in Chief
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Advisers, accountants and solicitors
have joined insurers to denounce the
Budget clampdown on the use of trusts in
inheritance tax planning.
ABI, Aifa and leading life offices have
demanded urgent talks with HMRC over the
chancellor’s shock decision to abolish
all use of trusts for mitigating IHT.
Virtually all life policies written in
trust, including, straight protection
policies, those used for inheritance tax
planning, as well as millions of will
trusts will be potentially hit by the
new rules. Their retrospective effects
have aroused deep anger.
Wilson Cotton of accountants and
financial advisers Smith & Williamson
said: 'Every will which uses a trust
will have to be reviewed before the
person dies. This will be a huge amount
of work as it probably has some effect
in one way or another on as many as 50%
of our clients.'
He added: 'What Gordon Brown has done is
wreck the whole integrity of the tax
system.'
John
Liddington of solicitors Speechly
Bircham pointed out that wealthier
clients routinely leave their assets up
to the nil rate band for IHT, currently
£275,000 for 2005-06, in a discretionary
trust for the benefit of children or
grandchildren. The surplus is left to a
spouse for their lifetime, reverting to
the children or grandchildren on the
death of the second partner. 'With the
new rules, if they do this now, there
will be an immediate 40% IHT charge on
the death of the first spouse,' he said.
Threesixty urged advisers to put their
clients’ inheritance tax plans on hold.
'Virtually all IFAs who conduct IHT
planning will have used interest in
possession trusts,' said David Ingram of
threesixty. 'This type of trust is used
in conjunction with virtually all
lump-sum IHT planning schemes. Most IFAs
conduct IHT business, and some IFAs have
even based their businesses on advising
on these kind of trusts.'
Anne
Young, senior technical manager at
Scottish Widows, said: 'The new rules
create uncertainty and complexity. With
the discounted gift schemes, for
example, which are widely used, there is
no way of knowing whether a trust will
be subject to a tax charge in future. We
will be making representations to the
chancellor. We are very, very
disappointed by this legislation.'
Budget
bombshell:
• There will be a tax charge of 20% on
all new trusts set up if the value of
the trust is higher than the nil rate
band for inheritance tax – currently
£275,000 – or where the individual has
already given away assets to the value
of the nil rate IHT band in the past
seven years.
• There will be a further tax charge of
6% on every 10th anniversary after the
trust is created. This will apply to
trusts set up in the future and existing
ones from 2008.
• The proposals will not apply to trusts
that are created on death by a parent
for a minor child who will become
absolutely entitled to the assets at age
18, or trusts that are created on death
or during lifetime for the benefit of a
disabled person. However, most
individuals putting money into trust for
a child will not want the child to
inherit absolutely at the age of 18, so
they will have to pay the tax charge.
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