The life company said a law introduced by ex-UK chancellor and prime minister Gordon Brown on 22 March 2006 changed IHT rules to mean that non-exempt transfers into most trusts are classified as chargeable lifetime transfers, potentially creating a 6% periodic charge if the value exceeds the nil-rate band (currently £325,000) on the tenth anniversary of a trust’s creation.
Additionally, the law requires trustees of trusts that exceed 80% of the nil rate band on the tenth anniversary to report them to HM Revenue & Customs, regardless of whether or not they will be subjected to a periodic charge.
The new requirements will apply to any trust reaching its tenth anniversary on or after 22 March 2016, and trustees with an obligation to report will need to send forms IHT100 and 100d to HMRC within six months of the anniversary.
The company also warned that most product providers will be unable to alert advisers to the ten-yearly anniversaries, indicating that it has been classified as the trustees’ responsibility.
It added that all product providers will be able to give advisers the relevant valuations of the trust upon request, and some will be able to aid with the calculations.
Paul Thompson, tax and estate planning consultant at Canada Life, said the law’s impact has been minimal so far, as trusts with no IHT on entry do not incur exit charges within the first 10 years of their inception, meaning any payments to beneficiaries would not face an IHT liability.
He added that while many advisers will be ready for the periodic tax charges, some may be caught out.
“I think some financial advisers will be aware, but some will definitely miss the deadline,” he said.
“Some will not have twigged that the changes were introduced in 2006 and are therefore approaching their 10 year anniversary and will be making a big impact very soon.
“Some would not have even been in business 10 years ago, and many of those that were will have put the deadline at the back of their mind for it to potentially be accidentally overlooked.”
