If you have multiple trust funds you could soon see your inheritance tax (IHT) bills rise significantly following new proposals from HM Revenue and Customs (HMRC).
HMRC has proposed a special “settlement” nil rate band in order to simplify relevant property IHT charges.
Taking effect from 6 April 2015, but applying to any settlement established or property added to a trust after 6 June 2014, the “settlement” nil rate band would last an individual’s lifetime.
Currently a nil rate band of £325,000 is available to all individuals before IHT is chargeable. Where individuals give away property to trusts during their lifetime the nil-rate band refreshes every seven years. In principle that means that an individual could set up a trust up to the value of £325,000 every seven years, with no IHT payable by the trustees.
The new IHT regime will mean that individuals will have to specify how the nil-rate band would be divided between any trusts they establish.
Under the new rules many trusts that were previously IHT free would fall into the tax net, increasing the total IHT charge payable by trustees.
In its consultation document, HMRC illustrates the point by explaining that under existing rules, a couple aged 40 could give away £3.25 million to trust, by the age of 75, with no inheritance tax cost. Under the new rules, this would drop to £650,000.
HMRC is also proposing to asked trustees to self-assess their inheritance tax calculations. A new flat rate of 6% is also proposed for inheritance tax, which is intended to make calculations of inheritance easier.
At JW Hinks, our Lifestyle Services team can provide a comprehensive inheritance tax planning service to ensure your wealth is protected.