In a welcome move, Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... have entered into a consultation process concerning the inheritance tax (IHT) regime for trusts. This is one of the more obscure and computationally complex areas of UK tax law, and any well-directed simplification should be gladly received by clients and advisers alike.
By way of background, most trusts set up after 22 March 2006 and certain trusts set up before that date (broadly discretionary trusts) are subject to IHT charges on the value of the property in the trust at each 10-year anniversary of the trust. “Exit charges” can also apply when assets are taken out of a trust.
The maximum tax rate in the case of both exit and 10-year charges is 6%, but various factors can mitigate the charge, not least the “nil rate band” of the person who put assets into the trust (the “settlor”). This can result in reams of complex calculations, often with little tax at stake. It will be particularly interesting to see what answers arise to the Revenue’s question as follows…
Question 4: How common is it for the costs of calculating periodic or exit charges on assets whose value is easily ascertainable (and not open to manipulation) to exceed the amount of tax involved?
In our experience, this can commonly be the case, and may make trusts unattractive in instances where they could otherwise serve a useful purpose as part of an individual’s IHT or succession planning.
Those who have trusts which are likely to be affected by the “relevant property regime” should take advice where appropriate and keep a keen eye on developments in this regard. If you think that you are likely to be affected, or would like to discuss your existing or proposed trust arrangements please contact us.