UK family trusts fall by 300,000

The number of UK family trusts and estates has fallen by 18 per cent from 195,500 in 2008/09 to 160,500 in 2012/13.

During that time the special tax rate was increased from 40 to 50 per cent, while the dividend trust rate rose from 32.5 per cent to 42.5 per cent.

James Ward, a partner at Seddons Solicitors, believes that the downward trend will continue unless the nil-rate band is increased.

He commented: "Given the tax increase on trusts in recent years, it is not surprising that the number of UK Family Trusts and Estates is decreasing.

"Unless the nil-rate band is significantly increased (a policy cautiously alluded to by the Tories) this downward trend is unlikely to be halted any time soon."

Income from interest in possession trusts and trusts paying income tax at the special trust rate in 2012-13 totalled £1.9m, 2 per cent more than in the previous year.

Effect of baby boomers

Despite the latest figures, Ward believes that as more baby boomers retire, family trusts will witness a gradual rise as he expects them to be drafted into wills.

"However, as family structures become more complex and the wave of baby boomers moves ever closer to retirement, the number of trusts being drafted into wills will continue to increase.

"Although discretionary trusts may not be their first port of call, individuals are clearly looking for more secure ways of preserving the next generation's inheritance."

The figures released by HMRC do not include trusts which have an annual income below £500, as they are not required to submit a self-assessment tax return, which is what the statistics are based on.

Binyamin Ali is assistant editor of Private Client Adviser