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Government plans to simplify IHT trust charges

Consultation also seeks views on proposals to align payment and filing dates

18 June 2013

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Consultation also seeks views on proposals to align payment and filing dates

HMRC has set out a number of options on how inheritance tax (IHT) charges on trusts can be simplified in a new consultation, which builds on Inheritance Tax: Simplifying Charges on Trusts published last year.

It said calculating these charges including the consideration of those on certain death-in-service pension schemes; standardising the treatment of accumulated income; and aligning filing and payment dates for ten-yearly and exit charges with the self-assessment framework were all areas for review. 

But Geoffrey Todd, partner in the private client and tax team at Boodle Hatfield, said while the firm supported attempts to simplify legislation, there was concern the proposals "may create more difficulties than they solve". 

He said: "We also feel that it would be fairer if the proposed changes were to apply only to new trusts, rather than to all trusts as currently proposed." (See below.) 

The proposals include ignoring a settlor's previous lifetime transfers when determining the available nil rate band to calculate ten-yearly and exit charges; splitting the nil rate band between the number of relevant property settlements that the settlor has made; introducing a standard rate of 6 per cent of the chargeable transfer when calculating the ten-yearly and exit charges; and ignoring non-relevant property.

The new consultation states that the improvements "can be made without any significant impact on the rest of the regime and in keeping with the government's objectives of delivering fairness while maintaining tax revenues".

Changes may create difficulties, says Geoffrey Todd

“Although the existing legislation is undoubtedly complex, and on occasion we do encounter situations where after a complicated calculation the fees are substantially more than the tax payable, we believe that the current rules are comprehensive and advisers are fully familiar with them.

“While having to take into account historical data that might be hard to find when setting up a trust can be difficult, dividing the nil rate band between all trusts created by the settlor may actually create more complications and more uncertainty.

“Trustees, for example, who will have to self­-assess the trust’s inheritance tax liability going forward may not necessarily know what other trusts their settlor has, had or will set up in the future. Rather than simply finding out what the settlor has done in the past, under the new proposals they would have to keep abreast of an ever­changing picture.”

Geoffrey Todd is a partner in the private client and tax team at Boodle Hatfield

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Tax & Wealth structuring Wills, Trusts & Probate