STEP Welcomes Government's Changes to Finance Bill to Protect Spouses and Young People
Following strong representations from the Society of Trust &
Estate Practitioners (STEP) and other professional bodies, the
government has returned to the pre-Budget position for spouses
safeguarded by trusts in wills.
As a result, spouses will not be in danger of losing the family
home and Muslim families can still make Islamic wills.
However, the new regime creates a series of different choices
for families that may make their existing wills unsuitable.
Families are still going to be put to the inconvenience of having
to review their wills, especially if they have set up trusts for
John Riches, Chair of STEP’s Technical Committee, said: "STEP is
delighted that the government has listened to us and has returned
to the pre-Budget position for spouse exemptions. This change means
that people in second marriages will still be able to use trusts in
their wills to protect both their spouse and the children of their
first marriage without incurring a tax charge. Muslim families will
still be able to use trusts to comply with Sharia law."
Today’s changes also go some way towards allaying fears that
irresponsibility would be encouraged by making children receive
capital from a trust at age 18. In essence families will have three
broad choices, as follows:-
- Give children capital at 18 outright with no ongoing 6%
- Leave children capital on fully flexible trusts with no
certainty as to when they will receive their share: in this case,
the trust will enter the 6 per cent regime on the death of the
parent and remain subject to that regime until capital is paid to
the child outright; or
- Leave children the capital on trusts broadly similar to
pre-Budget accumulation and maintenance trusts where they must
receive their capital by age 25. In this case, the trusts will not
become subject to the 6 per cent regime until the child attains age
18 in other words the additional premium to be paid for leaving the
capital in trust for 7 years after age 18 is 4.2 per cent.
Mr Riches added, “The government has acknowledged that parents
want the flexibility not to have to leave their children everything
outright at age 18. The premium for deferring capital entitlement
to age 25 using favoured accumulation and maintenance trusts is now
only payable after age 18 and families will be able to choose by
age 18 whether to pay the additional tax to secure flexibility or
hand the capital over.
"We still need to work through the detail of the changes and not
everyone will be satisfied but for anyone planning on using a trust
in their will, things are looking a lot better than they did on 22
- ENDS -
Notes to editors
- For further information, please call John Riches on
07796-264513 07796-264513 or Keith Johnston on 07884 182636 07884
- Spouse exemption secured for trusts established under Will or
Intestacy. The changes to the IPDI regime set out in the Government
amendments are very much to be welcomed. They effectively reinstate
trusts established under Will or Intestacy and in turn will
eliminate the disruption that would have otherwise arisen to the
estates of individuals dying since 22 March 2006.
In many cases, it will still be necessary for individuals who
have established trusts under their Wills to review their estate
planning arrangements so that they can consider in particular
whether, under the post Budget day rules, they wish to establish
continuing trusts after the life interest in favour of a surviving
spouse or partner comes to an end.
- 18 to 25. Under the original Budget proposals, favoured trust
status was only accorded to trusts which provided for capital to
pass outright to beneficiaries at age 18. Under the modified
proposals, it will now be possible for families to create trusts in
favour of children which extend beyond age 18 up to age 25 but only
at a price. Qualifying trusts set up under Wills which meet the
criteria will enter the discretionary trust regime at age 18
without an upfront 20 per cent charge. The maximum rate of tax
which families will therefore have to pay if capital passes to
children outright at age 25 is 4.2 per cent.
In some cases, some families may well see this as a price worth
- Existing AMTs. The changes to bereaved minors trusts (BMTs)
referred to above will also advantage existing AMTs established
before Budget Day. In other words, where beneficiaries are under
age 18 at the end of the transitional period on 6 April 2008 the 6
per cent regime will not apply until beneficiaries attain age 18
provided the trusts are modified before 6 April 2008.
This in part reverses the impact on existing trusts but still
starts from the premise that leaving assets in trust for children
after age 18 is a ‘privilege’ for which a premium in tax should be
paid. We do not think that the Government has made the intellectual
case or evidenced any form of inappropriate tax avoidance that
justifies such a material unlevelling of the playing field as
between the ability to make gifts outright free of inheritance tax
under the potentially exempt transfer regime compared to gifts in
Going forward, the ability to use trusts will therefore remain a
poor second in fiscal terms to outright gifts which means that many
of the socially desirable uses of trusts continue to be
- Existing life interest trusts. No changes have been made to the
TSI regime. Spouse exemption continues to be unavailable on the
death of an individual post 6 April 2008.