Inheritance Trusts – is a shake-up on the cards?
Trusts set up to mitigate inheritance tax are to come under scrutiny from the government as it begins a review to see if the system could be made 'simpler, fairer and more transparent'.
It has launched a 12-week consultation period seeking views and evidence on whether there is a need to reform trust taxation, a move which could affect thousands of tax payers if it gets the go-ahead.
How do these trusts work?
Set up specifically for inheritance tax purposes, these trusts allow wealth to be protected from the 40 per cent inheritance tax levied above a £325,000 threshold when someone dies.
Although trusts are subject to tax, the attraction is that they preserve wealth outside the estate meaning there is more to pass on to family.
What is the government worried about?
It is concerned that people who can afford accountants to set up inheritance trusts, an often complex process, may have an advantage over those who can't.
It also wants to investigate whether these trusts are fair or just a way of avoiding tax.
The consultation paper says: "The government wishes to ensure that the many UK individuals and companies using trusts legitimately benefit from a clear and transparent regime that is easy to understand, while taking steps to ensure that trust taxation does not produce unfair outcomes and that trust structures do not facilitate tax avoidance or evasion."
The government has also expressed concerns about the potential for avoidance and evasion in non-resident trusts.
What changes are likely?
There are a number of possible amendments that the government could introduce after the consultation period, including:
- Simplifying trust rules;
- Increasing the frequency and size of the 10-yearly tax charges;
- Reforming the regulations governing trusts to remove their tax advantage.
Caution
Experts believe that care should be taken when considering reform, especially as trusts play an important role, for example, in looking after the assets of vulnerable or disabled people and in protecting money for young children.
The consultation, which runs until 30 January 2019, comes ahead of a review by the Office of Tax Simplification, an independent arm of the Treasury, into inheritance tax, which is expected to recommend sweeping changes to the current system.
To read what else we have written on this subject, please see:
- Could the latest Inheritance Tax review ultimately help you and your family?
- Make sure your beneficiaries don't miss out under new rules affecting inheritance tax
For help, advice and guidance on this complicated area of the law please contact Wards Solicitors' Wills, Probate and Mental Capacity team by phone or pop into one of our 11 local offices.