I own no
assets held in trust apart
from a life policy to pay
out for my dependents. Am I
likely to be affected?
If you
have a life policy that is
written in trust for your
spouse or children,
inheritance tax may well be
payable on the proceeds when
you die.
Are deeds
of variation of wills
affected?
Deeds of
variation are often used to
re-write someone’s will more
tax effectively. At present
it appears that these are
not directly affected by the
proposals in that any
variation would still be
treated as made by the
deceased.
I am
getting divorced. The house
and other assets are being
left under a court order on
trust for my wife to be
split between us when my
children reach 18. Am I
affected?
Yes. This
transfer may well be
chargeable to inheritance
tax because spouse exemption
is no longer available. It
is possible you can argue
that there is no tax due
because you are not making a
gift. However, even then
there may be ongoing
inheritance tax charges on
the trust assets whenever
capital is distributed and
every ten years. You should
wait until the draft
legislation appears in early
April.
I am the
beneficiary of an existing
trust and the assets are to
pass to my spouse on death.
Will the assets still be
exempt from inheritance tax?
If you
die after 2008 the assets
will no longer qualify for
the spouse exemption.
I set up
a trust for my
grandchildren/children some
time ago. How are they
affected by the proposals?
Beneficiaries of these sorts
of trusts (often used for
school fees) will need to
take both income and capital
no later than 18 to avoid an
inheritance tax charge after
this. If they are already
entitled to income nothing
needs to be done.
What is
the rate of inheritance tax
payable?
If you
set up any trust now in your
lifetime the rate of tax
will be 20 per cent on the
value of the gifted
property. However, if
you have made no earlier
transfers the first £275,000
is taxed at 0 per cent.
Thereafter the trust will
suffer tax at a maximum of 6
per cent every ten years and
on capital distributions
although it is likely that
this rate will rise.
Can I
make gifts to people
outright?
You can
still make gifts to
individuals outright. As
long as no trust is involved
and you survive seven years
there is no inheritance tax
payable. You should not add
to trusts or make new
trusts. Almost all such
transfers could suffer
inheritance tax.
Why are
trusts being penalised?
The
Government appears to
dislike assets being held in
trust even when the trust is
set up in a will and hence
the requirement that the
children must take at 18.
Can I now
do anything to my existing
trusts?
The
Government has given a
transitional period until
2008 during which trusts can
be varied. However, minor
children will generally need
to take outright at 18 to
avoid inheritance tax
penalties and existing
trusts may need to be ended.
Capital gains tax may well
be triggered if you
terminate existing trusts so
take advice first.
Emma Chamberlain,
a barrister, is a member of
the Technical Group of the
Society of Trust and Estate
Practitioners and Chair of
Capital Taxes Committee,
Chartered Institute of
Taxation
