Tech talk
Trusts & Inheritance Tax Changes - Finance Act 2006
- Final Position - TT27/06
This Tech Talk summarises the final position with regard
to the changes to the Inheritance Tax (IHT) treatment of trusts
made in the Finance Act 2006. Details of the original Budget
proposals and subsequent amendments were included in Tech
Talks 16,17,18,25 & 26. This Tech Talk gives a complete
summary of the points included in these bulletins now that
the Finance Act 2006 has received Royal Assent (on 19 July
2006). The final legislation for the IHT changes is contained
in Section 157 and Schedule 20 of the Act.
The aim of this bulletin is to highlight the changes and
explain how they impact on the trusts offered for both protection
and investment products as well as looking at some of the
issues for will planning.
Re-cap
Prior to 22 March 2006, any lifetime gift to an Interest in
Possession (IIP) trust or an Accumulation & Maintenance
(A&M) trust would have been treated as a Potentially Exempt
Transfer (PET). Any beneficiary with an interest in possession
(i.e. entitlement to income under the trust), would have the
value (or a share of it) as part of their own estate for IHT
purposes. This was a special treatment which meant that these
trusts were not subject to the mainstream IHT regime for trusts.
In practice, only discretionary trusts were subject to this
regime, otherwise known as the "relevant property"
regime.
Under the proposals in the Budget, most trusts created on
or after 22 March 2006 will now be subject to the "relevant
property regime". The IHT treatment for trusts is therefore
being streamlined so that all trusts are treated in the same
way with some limited exceptions.
What does this mean in practice?
This means that:
- When a trust is created, there will be an immediate charge
to IHT at 20% on lifetime transfers that exceed the available
IHT threshold (£285,000 for the tax year 2006/07).
- a periodic charge (a maximum of 6%) will apply at every
10th anniversary on the value of the trust assets over the
nil rate band at the time. Chargeable transfers made by the
settlor in the seven years prior to creation of the trust
must be added to the value of the trust fund for this purposes.
- An exit charge will apply where capital is distributed to
beneficiaries between 10 year anniversaries. This is known
as the "proportionate" charge since it is calculated
by reference to the periodic charge.
Does this mean that PETs have gone altogether?
PETs can still be made if the lifetime gift is made outright
to another individual. If the gift is being made to a trust
after 22 March 2006, it will still be treated as a PET if
the trust is an Absolute or Bare Trust or a trust for a disabled
person (as defined under section 89(4) IHTA 1984).
PETs made to IIP and A&M trusts prior to 22 March 2006 would
have been PETs at the time the gift was made and these will
not be affected retrospectively.
Can existing trusts in place at 22 March 2006 be affected
at all?
Yes. Although as detailed above, earlier gifts to the trust
will not be affected by the change, in certain circumstances
the trust could fall into the new regime. Before we look at
the details on this, the first point to consider is whether
the trust was actually in place before 22 March. For the trust
to be "created", the asset must have been transferred to the
legal ownership of the trustees. In the case of cash, or a
life assurance policy, the cheque must have been encashed.
Simply dating the trust prior to 22 March is not sufficient.
Any additional gifts made to an existing trust arrangement
will be subject to the new regime.
Existing Interest in Possession Trusts
Interest in possession trusts which were in place prior to
22 March 2006 will not suffer any exit or periodic charges
unless the existing interest comes to an end. Under the new
rules, any interest in place at 22 March 2006 is known as
a "prior interest". If this interest ends on the death of
the beneficiary, the value of the trust will be part of the
beneficiary's estate for IHT purposes. If the interest comes
to an end because the beneficiary (or any other beneficiary)
becomes absolutely entitled to the assets, no exit charge
will apply. If the assets continue to be held on trust after
the death of the original beneficiary with the prior interest
and another beneficiary becomes entitled to an interest in
possession, the old regime will continue to apply i.e. the
value of the trust fund will be deemed to be part of the beneficiary's
estate for IHT purposes and the trust will not be subject
to the new regime. This new interest is known as a Transitional
Serial Interest (TSI) as it is treated as having been in place
as at 22 March 2006. This is a relaxation of the original
Budget proposals which previous indicated that the beneficiary
would have had to die before 6 April 2008 for this to apply.
If the interest ends after 6 April 2008 during the lifetime
of a beneficiary with a prior interest and the asset stays
in trust, for example where trustees of a flexible trust alter
the beneficiary of the trust, this will be regarded as a new
trust for the purposes of the new regime and exit and periodic
charges will apply thereafter. The beneficiary being removed
will be deemed to have made a chargeable lifetime transfer.
The period from 22 March 2006 to 6 April 2008 is therefore
a transitional period in which trustees have the opportunity
to vary the original beneficiary without bringing the trust
into the new regime. Any new interests created during this
window of opportunity will also be TSIs. Trustees would therefore
be well advised to review any flexible trusts in place at
22 March 2006 before 6 April 2008 to ensure the default /
named beneficiaries are still appropriate.
Another change under the new rules relates to the gift with
reservation of benefit provisions. Take the example of a flexible
trust where the children are "default" (or named) beneficiaries.
In the past their interest could be terminated (say in order
to skip a generation in favour of the grandchildren) and the
children could still benefit as discretionary beneficiaries
without the Gift with Reservation provisions applying. Now
if an interest is terminated and that person is still able
to benefit from the trust, this will be treated as a gift
with reservation of benefit for the beneficiary being removed.
Trustees may then need to consider removing that beneficiary
from the classes of potential beneficiaries.
Existing Accumulation & Maintenance Trusts In the past, Accumulation
& Maintenance trusts have been popular where clients wish
to provide funds for children or grandchildren and are often
used in conjunction with funding for school or university
fees. Typically this kind of trust would give beneficiaries
an income entitlement at age 21 or 25 and capital would often
be deferred until some point in the future.
Under the original Budget proposals such trusts would only
remain outside of the new regime if the trust terms state
(or were amended to state) that beneficiaries would become
absolutely entitled to trust assets at age 18. This caused
an uproar since many parents were reluctant to give their
children or grandchildren large sums of money at 18. Consequently,
the original proposals were later amended to provide a slightly
more relaxed tax regime where the trust allows the beneficiary
to take the trust assets absolutely no later than age 25.
Broadly, this favoured tax status can be summarised as follows:
- Trust assets will be exempt from periodic charges while
the beneficiary is under 18
- Periodic charges will then only start to apply if the trust
continues beyond age 18
- If the trust continues for a maximum 7 more years to age
25, then the capital leaving the trust will be subject to
7 years worth of charge on exit , i.e. 7/10 x 6% = 4.2% max
- If a beneficiary became absolutely entitled at (say) age
20, then the maximum exit charge would be 2/10 x 6% = 1.2%
Existing A & M Trusts can be modified before 6 April 2008
to reflect the 18 - 25 provisions. Assuming this is the case,
then when a beneficiary is under 18 at the end of the transitional
period on 6 April 2008, the 6% regime will not apply until
the beneficiary attains age 18. These provisions can also
apply to will trusts (Trusts for bereaved minors) - more of
this later.
In practice, what will the consequences be for lifetime
IHT planning?
Given that most lifetime gifts for small to medium sized estates
fall within the nil rate band, in practice lifetime IHT planning
using trusts can still be carried out in many cases without
an immediate IHT charge of 20% arising. Provided the donor
survives for seven years, the full nil rate band will be available
again. On the face of it this does not appear to be much different
from a PET, however chargeable lifetime transfers can in practice
affect the tax payable on gifts over a 14 year period prior
to death. A detailed example of this was included with TT18/06.
In order to avoid this complication, one planning strategy
would be for clients to make a lifetime gift up to the value
of the nil rate band every seven years and any gifts in between
should be simply to use exemptions such as the annual exemption
or normal expenditure out of income exemption
Impact of the new regime on writing protection policies in
trust Life assurance protection policies written under flexible
trusts prior to 22 March 2006 will not be subject to the new
regime even though premiums will continue to be paid on the
policy after this date. The reasoning behind this is that
the premiums payable are simply fulfilling a contractual obligation
rather than constituting new assets to existing trusts. The
new legislation also makes it clear that where policy terms
are varied on or after 22 March, the trust will still be protected
from falling into the new regime provided that the original
terms of the policy allowed for this. The amended legislation
refers to this as an "allowed variation" defined as "…a variation
that takes place by operation of, or as a result of exercise
of rights conferred by, provisions forming part of the contract
immediately before 22 March 2006".
Changing the beneficiaries on an existing flexible trust
after 6 April 2008 (other than as a result of the death of
the default / named beneficiary) will bring the trust into
the new regime as noted earlier in this bulletin.
Life policies written into trust after Budget Day will however
be within the new regime. We will now examine in detail how
the provisions will impact.
On creation
In general, where a trust is created by a regular premium
life policy, there will be no 20% lifetime tax charge since
the value of the gift made is simply the premiums paid on
the policy. Such premiums are usually exempt from IHT either
because they fall within the annual exemption (currently £3,000
per annum) or because the premiums qualify as normal expenditure
out of income based on the proposer's spendable income.
Even where large premiums are paid and none of the exemptions
apply, provided the policy owner has not used his/her nil
rate band, no tax charge should arise provided that the premiums
over a seven year period do not exceed the available nil rate
band.
Where an existing policy is placed into trust now the value
of the gift is the open market value of the policy (usually
this is the greater of the surrender value or the premiums
paid to date). Again provided this is within the available
nil rate band, no tax charge will arise.
Ongoing periodic & exit charges
Periodic and exit charges apply where there is a value within
the trust. Consequently as long as the life assured is in
good health, or the policy has no significant surrender value,
there will be no value in the trust, therefore no charges
will arise. HMRC have confirmed that they do not expect individuals
to have medicals every 10 years for the purposes of the new
legislation. Provided the individual is not seriously ill
to the best of their knowledge and belief, no further action
would be needed. They also indicated that for the purposes
of the 10 yearly charge, generally they will accept the surrender
value of the policy.
If however the surrender value is significant or the life
assured is in poor health, the value of the trust at the 10th
anniversary (and each subsequent 10th anniversary) may be
subject to IHT at 6% on the excess above the nil rate band
at that time.
More commonly charges may arise if a claim is made on policy
and the proceeds remain in the trust for a period of time.
An exit charge should not arise where proceeds are paid out
within the first ten years if the value of the initial gift
(including the cumulative total of the settlor's chargeable
transfers in the seven years prior to the gift) plus any added
property is below the nil rate band. If funds continue to
be held in trust beyond the tenth anniversary any exit charges
will depend on the rate of the previous periodic charge.
Example
It is August 2006 David and Sally do not want to make any
lifetime gifts. Instead they take out a joint life second
death policy with a sum assured of £400,000 which is intended
to meet the IHT liability on their estate and they write this
in a flexible trust for the benefit of their three children.
The monthly premiums qualify as normal expenditure out of
income and therefore no immediate IHT charge will arise on
setting up the trust. Assuming the second death arises 15
years later the IHT implications for the trust will be as
follows:
August 2016No periodic
charge assuming the surrender value is
(Year 10)
below the nil rate band at the time.
2nd Death Claim
is made. If funds are paid out immediately no IHT implications.
(Year 10) If
held in trust beyond the following 10th anniversary - IHT
charge possible. 6% x (value of trust less NRB)
In the vast majority of cases, no IHT liabilities will arise
in connection with life policies in trust.
Business Protection Policies
Although, in theory business trusts are also affected, in
practice IHT charges would be unlikely to arise. Payment of
the premiums are not treated as gifts since they are in connection
with a commercial arrangement. In the event of a death claim
the funds would normally be paid immediately to the other
shareholder in order that they can purchase the shares of
the deceased.
In the event of a critical illness the shareholder could of
course choose not to sell his/her shares in which case if the
proceeds remain in trust beyond the 10th anniversary of the
trust's creation, periodic and exit charges could arise. The
solution would be to release the funds from the trust and for
the other shareholders to hold on to the cash personally.
Implications for our trust range for bonds
We offer a range of trusts for use with investment bonds.
We can comment on the implications for both new and existing
trusts as follows:
Estate Planning Trust (Discounted Gift Trust)
Trusts set up on or after 22 March 2006:
If the trust is set up for a disabled person or as a bare
trust then the previous rules still apply.
If the trust is not set up for a disabled person or as a
bare trust, then the discount will still apply but the discounted
gift will not be a PET as before but rather a chargeable lifetime
transfer. If the value of this when added to the settlor's
chargeable cumulative total is within the Nil Rate Band then
no lifetime charge to IHT will arise. If however the Nil Rate
Band is breached then the excess will be subject to an entry
charge at 20%.
If a beneficiary dies, then his/her interest under the trust
will not form part of that person's estate for IHT purposes
(as it would have done previously). Similarly, if the beneficiaries
are changed then this will not now be regarded as a PET by
the "outgoing" beneficiary on the value of their interest
under the trust.
Completion of form IHT100 is necessary for a settlor to
inform HMRC regarding gifts which give rise to an immediate
charge to IHT. This is required within one year of making
the gift (it is not necessary to inform HMRC of PETs when
they are made). Form IHT100 is only not required when the
value of the gift plus other chargeable transfers in the same
tax year do not exceed £10,000 and the gift and other chargeable
transfers made by the individual in the previous ten years
does not exceed £40,000.
The fact that a discount is merely suggested and not cast
in stone therefore opens up the possibility of either the
IHT100 form being completed with an incorrect valuation or
IHT being underpaid when the chargeable transfer turns out
to exceed the Nil Rate Band due to the discount being wrongly
overstated. However the good news is that HMRC will now have
to agree the value of the discount when the trust is created
as opposed to when the settlor dies.
As noted earlier in this bulletin, the value of any property
included in the trust at the tenth anniversary will be subject
to a periodic charge. Under a discounted gift trust, the settlor
retains the right to certain capital payments assuming he
survives to specified dates in the future. Since these rights
are held on bare trust for the settlor, HMRC have confirmed
that the value of these rights are not part of the trust property
for the purpose of the ten yearly charge. So the relevant
property in the trust will be the value of the bond less the
value of the settlor's rights. Furthermore, strictly speaking,
these rights would need to be revalued every ten years and
underwritten at that time. However, HMRC have also confirmed
that it will be acceptable simply to add ten years to the
settlor's age at outset for this purpose provided that the
discounted gift trust was underwritten when the trust was
established.
Since the settlor's rights do not form part of the trust
property, it has also been confirmed by HMRC that exit charges
will not apply when the settlor receives his/her income.
Existing Estate Planning Trusts (and existing SMI IHT
Plan trusts)
The discounted PET previously made will be unaffected (though
any addition of new assets will be subject to the new rules).
If the beneficiary with the interest at 22 March 2006 dies
("the prior interest"), their interest under the trust will
form part of their estate for IHT purposes. A new beneficiary
can be appointed after the death of the beneficiary with the
"prior interest" without bringing the trust into the new regime.
If the named beneficiaries are changed during their lifetime,
then this will be regarded as a PET by the "outgoing" beneficiary
on the value of their interest under the trust if the change
occurs before 6 April 2008. The new beneficiary will then
have the value as part of their own estate. If the change
occurs on or after this date, the outgoing beneficiary will
make a chargeable lifetime transfer and the trust will be
subject to the new regime from then on.
The other trusts that we currently offer for investment bonds
are as follows: -
Gift trusts (flexible and absolute)
Family Inheritance Trust
Gift & Loan Trust Probate Trust
Probate Trust
Trusts involving a gift
It is only the Gift Trusts and the Family Inheritance Trust
which involve the creation of a PET. Since the Absolute Gift
Trust gives an absolute entitlement to income and capital,
this falls outside the new regime ie gifts to these trusts
will continue to be PETs. For Flexible Gift Trusts and Family
Inheritance Trusts established on or after 22 March 2006 the
gift (or the Gifted Fund in the case of the Family Inheritance
Trust) will constitute a chargeable lifetime transfer with
IHT at 20% payable on gifts in excess of the Nil Rate Band.
Thereafter periodic and exit charges will apply as appropriate.
(No periodic or exit charges will apply to the Reserved Fund
in the Family Inheritance Trust since this is held on bare
trust for the settlor). As detailed earlier, the trust fund
will not form part of any beneficiary's estate as would have
happened previously. The value of the initial transfer should
be known with accuracy allowing for correct completion of
form IHT100.
For those Flexible Gift Trusts & Family Inheritance Trusts
already in existence then they will remain unaffected providing
no new additions to the trust are made or no change in the
existing beneficiary's lifetime occurs after 6 April 2008
as detailed earlier.
Gift & Loan Trust
The "Gift & Loan" trust which we offer is in fact purely
a loan arrangement with no gift now involved. Therefore, no
PET was made previously. On the basis therefore that no initial
transfer of value is included, this trust will be affected
to a much lesser extent by the new regime. However , the beneficiaries
will no longer have the growth as part of their estates for
IHT purposes, therefore the trust could be subject to periodic
and exit charges at some point in the future depending on
the value of the trust fund. HMRC have confirmed that for
the purposes of calculating the periodic charge, the value
of the outstanding loan balance repayable to the settlor can
be deducted from the value of the trust property. There would
therefore need to be significant growth (in excess of the
nil rate band in the trust assuming no earlier transfers were
made by the settlor prior to creating the trust) before any
periodic charges would apply.
Existing Gift & Loan Trusts will only become subject to the
new regime if beneficiaries are changed during their lifetime
after 6 April 2008 as covered earlier.
Probate Trust
The probate trust is designed avoid probate (Confirmation
in Scotland) on the death of the life assured. It is commonly
used with offshore bonds in order to speed up the claims process
and avoid the administrative burden of obtaining probate in
another territory. This trust is a flexible trust where the
settlor is automatically included as a potential beneficiary
to allow access. The trust is not offered for IHT planning
purposes since the assignment of a policy to such a trust
would normally be seen as a gift with reservation therefore
it would continue to be part of the settlor's estate. Unfortunately,
this trust appears to be a casualty of the new regime since
although it is a gift with reservation, the transfer to this
trust is nevertheless a chargeable lifetime transfer. Therefore
depending on the value of the asset going into trust, an immediate
tax liability could arise on creation without it escaping
IHT on the settlor's death. The trust would also be subject
to ongoing periodic & exit charges again depending on the
value. So it would appear unlikely that this trust will be
used in the future in its current form. We are currently looking
at ways to amend this trust to make it more tax efficient
under the new regime.
Spousal By Pass Trust (For use with Pension Arrangements)
We also offer a Spousal By Pass trust for use with certain
pension arrangements. Since this trust is a discretionary
trust, this already came within the "relevant property regime"
and therefore there are no changes to the tax implications
of using this trust as a result of the Finance Act. Full details
of the tax treatment of this trust are available in the technical
note to the Spousal By Pass Trust which can be found on our
website.
How are will trusts affected?
Many trusts created in clients' wills are discretionary trusts
anyway (e.g. nil rate tax planning trusts). Since discretionary
trusts have always been subject to the "relevant property
regime" nothing has changed.
However, it is still recommended that clients' wills should
be reviewed to ensure that any trusts created are still appropriate
in particular, any trusts for the benefit of the spouse or
young children.
Trusts for Surviving Spouses
The Finance Bill introduced the concept of an "Immediate
post-death interest" (IPDI).
For deaths on or after 22 March 2006, a will trust (or one
arising under intestacy) is subject to the discretionary trust
regime unless an IPDI is created. Broadly this required an
interest to arise immediately on death:
- Which could only be terminated in the life tenants favour
or with their consent
- Which will end with the trust property passing into absolute
ownership, or onto trusts for a minor child, a disabled person
or charity
Under the original proposals therefore a very simple will
trust with income payable to surviving spouse/civil partner
for life and remainder to children absolutely would qualify
as an IPDI (and avoid the discretionary trust charges). If
however the remainder interest continued in trust for children
(rather than passing to them absolutely on death of the life
tenant), then it would not qualify. Similarly, the existence
of a standard power of appointment exercisable by the trustees
in favour of a range of beneficiaries also breached the qualifying
condition.
To appreciate why it is desirable to create an IPDI, consider
a will trust creating an IPDI with the life tenant being surviving
spouse/civil partner. If so, the gift into trust on death
qualifies for the IHT inter spouse exemption. If however the
trust does not qualify as an IPDI then it would be taxed as
a discretionary trust with no inter-spouse exemption available.
This posed a major problem since many wills had already been
drafted comprising a nil rate band discretionary trust, and
residue then passing into a flexible interest in possession
(IIP) trust in favour of surviving spouse/civil partner. The
aim of these wills was clearly to avoid an IHT liability on
first death, yet if the Budget proposals had been enacted
as they stood, an IHT liability would have arisen on estates
above the nil rate band.
The requirement for there to be an absolute interest following
the life tenant's death was dropped as the bill progressed
through Parliament. It is no longer necessary for the life
tenant to consent to their interest being ended. Therefore,
a flexible will trust with surviving spouse/civil partner
being the life tenant, but with powers for the trustees to
appoint to a range of beneficiaries (e.g. children, grandchildren)
will qualify as an IPDI, and therefore enjoy the benefit of
the inter-spouse exemption at time of first death.
S144 IHTA 1984 (Discretionary Wills)
Many individuals when drafting wills are unsure how their
estate should be distributed on their death. If so, a common
solution is to leave the estate (or part of it) to be held
on discretionary trust. S144 allows distributions to be made
from discretionary trusts within two years of death as if
the gifts had been made by the deceased, and crucially without
any charge to IHT (as there would normally be for property
leaving a discretionary trust). The trustees therefore could,
within this two year period, distribute assets or declare
further trusts as they see appropriate, or perhaps act in
accordance with a letter of wishes drafted by the deceased.
Under original proposals, if S144 was used to create a life
interest for surviving spouse then this did not constitute
an IPDI (since it did not arise immediately on death). Consequently
the inter spouse exemption would not be available. However,
under the amended provisions if S144 is being used, trustees
can create a Bereaved Minor trust (see below), an 18-25 trust,
or an IPDI as if they had been created in the will. If the
IPDI is in favour of the spouse, the spouse exemption will
be available.
Trusts for Bereaved Minors
Trusts for children should also be reviewed if the existing
will includes provisions for income or capital to be withheld
beyond age 18. The original Finance Bill proposals stated
that from 22 March 2006, a trust created on death by a parent
for a minor child would fall into the mainstream discretionary
trust ('relevant property') regime unless the child became
fully entitled to the trust assets at age 18. In other words
if the child was not to become fully entitled by age 18 (and
assuming the child was not disabled) then the trust would
be subject to periodic and exit charges from the date of death
of the parent. Accordingly, the tax favoured rules for Bereaved
Minor trusts were only available in very restrictive cases.
Fortunately, the Government has given into pressure on this
issue and favoured trust status can now apply to trusts continuing
beyond age 18, so long as the beneficiary will take the trust
assets absolutely no later than age 25. Assuming this is the
case then : ·
- Trust assets will be exempt from periodic charges while
the beneficiary is under 18
- Periodic charges will then only start to apply if trust
continues beyond age 18
- If trust continues for a maximum 7 more years to age 25,
then the capital leaving the trust will be subject to 7
years worth of charge on exit , i.e. 7/10 x 6% = 4.2% max
- If beneficiary became absolutely entitled at (say) age
20, then the maximum exit charge would be 2/10 x 6% = 1.2%
If however the will trust is fully flexible with no certainty
as to when the child will receive his/her share, then the
discretionary trust regime (i.e. the 6% regime) will apply
from date of death.
We have already looked at ways in which existing A & M trusts
can be amended to fall within this new category of trust and
receive favoured tax status.
IOU Schemes (Designed to use the nil band with the
family home)
One piece of good news with regard to will planning is that
nil rate tax planning with the family home may become simpler.
In the past the difficulty with leaving a half share in the
family home to discretionary trust was to ensure that the
spouse was not deemed to have an interest in possession in
the trust by having a right to live there. In this case the
value of the trust fund would be deemed to have been part
of the spouse's estate. To combat this, various schemes based
on an IOU or charge were developed. However, it may be the
case that since having an interest in possession in a flexible
or discretionary trust no longer means that the value is included
in the beneficiary's estate under the new rules, presumably
these schemes will become less popular particularly if the
value of the share of the house is within the nil rate band
(unless the interest is deemed to be an IPDI). We can expect
more comment on this over the coming months however in the
meantime it may be safer to continue to use IOU or charge
schemes until such time as this has been clarified. The IOU
or charge scheme may be particularly beneficial if the value
of the half share of the house is in excess of the nil rate
band anyway.
Comment
Although there is no doubt that the changes made in the
Finance Act 2006 have made trusts more complex, the impact
of the new regime will be far less dramatic than first thought.
The Government estimate that additional IHT of approximately
£15M per annum will be raised from these measures which emphasises
how few people will actually be affected. Given that most
life policies and lump sum gifts within the nil rate band
will largely be unaffected, the extra tax raised will mainly
come from large lump sum gifts in excess of the nil rate band
being placed into trust. Clients with large estates may well
decide to use absolute or bare trusts for their lifetime IHT
planning although it must always be remembered that this lacks
flexibility.
In terms of opportunities for financial advisers, the changes
will offer the possibility of strengthening professional connections
by reviewing existing wills & trust arrangements prior to
6 April 2008 to establish whether any amendments are needed.
This will inevitably involve the clients' solicitors. Clients
will also need to think about their estate planning strategies
earlier in their lives than before if they have larger estates
to ensure that they can use their available nil rate bands
every seven years. It is anticipated that there will be greater
demand for discounted gift trusts where clients can make gifts
in excess of the nil rate band without any immediate IHT liability
after taking account of the discount. Finally, rather than
incurring an immediate IHT charge at 20%, many clients contemplating
large gifts may well choose to fund a whole of life policy
instead.
So without a doubt clients will still need advice on trust
based IHT planning solutions more than ever before.
Liz Henderson - August
2006