Draft legislation to block multiple-trust IHT planning
The object is to counter the tax planning strategy under which a settlor can create multiple pilot trusts and settle part of his or her estate into each one, up to the value of the IHT nil-rate band. Each such trust is entitled to its own full IHT nil-rate band.
Originally, the Treasury planned to block this technique by introducing a single 'settlement nil-rate band' to be divided between all of an individual settlor's trusts. However, it was announced in last week's Autumn Statement that this idea would be dropped in favour of a targeted anti-avoidance rule. The new draft legislation, to be implemented in next year's Finance Act, but which took effect yesterday, sets out this rule.
The measure – comprising a new s62A added to the 1984 Inheritance Tax Act – declares that:
'[...]where property is added to two or more settlements on the same day and after the commencement of those settlements, the value of the added property together with the value of property settled at the date of commencement (that is not already in a related settlement) will be brought into account in calculating the rate of tax' for the purposes of ten-year charges, exit charges and for the charge on 18/25 trusts.
The effect of this, according to HM Treasury, is that individuals will no longer have the advantage of multiple nil-rate bands by creating multiple trusts, but they will be able to settle property up to the value of the nil-rate band into a trust every seven years.
The new rule will apply to all charges arising on, or after, the proposed commencement date of 6 April 2015 in respect of relevant property trusts created on, or after, 10 December 2014. To prevent forestalling, it will also apply to relevant property trusts created before 10 December 2014 where additions are made to more than one trust on the same day.
The rule about additions to existing trusts will not apply to a will executed before 10 December 2014, although this exclusion will be limited to deaths before 6 April 2016. This is to allow time for affected individuals to change their will and avoid unwanted tax consequences.
The legislation will also modify the periodic IHT charges imposed on relevant property trusts. It will no longer be necessary to include non-relevant property in the calculation of ten-year anniversary charges or exit charges arising on, or after, 6 April 2015, regardless of when the trust was created.
A conditional exemption from the charge is being made available, in that trustees will be able to claim an exemption within two years of the ten-year charge arising, rather than having to claim it before the ten-year charge is removed.
A further concession is granted for appointments out of property settled by a will. This will ensure that, where an appointment is made in favour of the deceased's surviving spouse within three months of the death, it can be read back into the will and exempted from the tax charge.
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