The Budget of 22nd March 2006 announced some major changes to capital taxes and trusts. Caroline Green of Fisher German’s Ashby office recommends, “In the light of these changes Estate owners should review their wills and current trust arrangements.”
Of particular note, the discretionary trust IHT charging regime has been extended to all lifetime trusts. For example, before the budget day in 2006, gifts into Accumulation and Maintenance (A&M) trusts and Interest in Possession (IIP) trusts were treated as potentially exempt transfers. Now the same rules as those for Discretionary trusts apply, namely a 20% entry charge, a 6% 10 yearly charge, and a 6% exit charge.
There are limited exemptions to the changes, including charitable trusts, trusts for disabled people, trusts created on death by a parent for a minor child who will be fully entitled to the assets at 18, and trusts created on death for the benefit of one life tenant whose interest cannot be replaced.
The Budget changes apply immediately for new trusts; however transitional arrangements are in place for trusts already in existence, which offer a one-off opportunity up until 6 April 2008 to carry out changes. Therefore there is some urgency for estate owners to investigate their options. For example:
• Investigate transfers into or from A&M or IIP trusts before the entry and exit charges take effect. Also consider the value of assets and the availability of APR/BPR – such assets may be best left out of trust.
• Consider giving up a life interest. If a person with an existing life interest gives up this interest before 6th April 2008 and appoints it to a new life tenant, the pre 22nd March 2006 IHT treatment applies.
• Review wills, particularly if they involve the creation of complex trusts.
• Re-consider the age at which the beneficiary will inherit, for example, could some assets be left fully to a current minor when they reach 18 to avoid the new charges?
For further advice on this issue please contact andrew.jackson@fishergerman.co.uk
