Trust penalty

If you have a trust in your ‘will’ then possibly it should be reviewed. This is due to the type of trust that your will may be setting up on your death and the way in which different trusts are treated for inheritance-tax (IHT) charges on their assets. The clampdown, first announced in 2006, hits two types of trust that were often written into wills to provide for family members – accumulation and maintenance and interest in possession.

A&M trusts were particularly popular with grandparents who wanted to pass assets on to grandchildren free from IHT, but wanted to retain control of how those assets were used.

Before the new rules, gifts into the trusts were usually exempt from IHT but from October (Updated 14 March 2008 - Budget) they could be subject to 20% tax above the IHT threshold (currently £300,000 2007/08), as well as ongoing 6% charges every decade.

The charges applied immediately to trusts set up after March 2006, but existing trusts were given until 5^th October 2008 (Updated 14 March 2008 - Budget) to make changes. Families can avoid the new charges by making sure that the children become absolutely entitled to the assets at 18.

Is it still worth setting up a trust? Lifetime gifts into trust are subject to IHT only above the nil rate band – currently £300,000. AisaProfessional therefore recommend that people who have more than £300,000 to give away start planning as soon as possible, and do not rely on the new rules proposed in October 2007. See our separate newsletter on Inheritance Tax.

This should not be deemed as individual advice and you should seek further information particular to your individual circumstances. For further information, contact AisaProfessional on (01672) 569111.