In a document released earlier this month, HMRC said its proposals to introduce a £325,000 single nil rate band, to be split across all trusts opened by any individual settlor, would only affect settlements made after 6 June or additions and variations to existing trusts.
Skandia said that while the exclusions were “pragmatic”, thousands of clients will now need advice to ensure their existing assets remain unaffected if the proposals are enacted.
But the life insurance company added that trusts will remain a “valuable” estate planning tool because they offer a better tax rate than the 40% “death tax”, have no probate, and provide more certainty and protection.
'A will to pass assets on'
Head of technical marketing, Rachael Griffin, said: “With the right advice it is possible for existing trusts to remain unaffected, preventing thousands of trusts becoming liable to tax, avoiding a headache for both clients and advisers.
“Trusts will continue to offer advantages in estate planning compared to relying solely on a will to pass assets on.
“Advisers can add value by ensuring the tax efficient benefits are maintained and the new rules are applied correctly.”
HMRC introduced the proposals following concerns that the current trust system was being abused in order to avoid inheritance tax payments.
Under the current system, multiple trusts can be set up on different days, each with an individual nil rate band below the £325,000 inheritance tax limit.
But if the proposals become law, then trustees of all trusts set up by an individual settlor will have one nil rate band (currently £325,000) to share between them in proportions designated by that settlor, inhibiting planning strategies which use multiple trusts to reduce total IHT charges.
'RIP trusts'
Contradicting Skandia, Gary Heynes, private client group partner at Baker Tilly, said the proposals would lead to the ultimate ‘demise’ of trusts.
He said: “With the high levels of income tax, capital gains tax and the prospect of increased inheritance taxes as well as the likelihood of a public register of beneficiaries and assets, as recently voted for by European MEPs, trusts have now become much less attractive.
“All of these issues put trusts on a very unequal footing to direct ownership and may be the final nails in the coffin. RIP trusts.”
