Taxation of trusts: HMRC consults for a third time

On 6 June 2014 HMRC published its third consultation document over attempts to simplify IHT charges on trusts.

11 July 2014

On 6 June 2014 HMRC published its third consultation document over attempts to simplify Inheritance Tax (IHT) charges on trusts. This concentrates on the nil rate band (NRB) available to the trustees of a settlement.

As the rules currently stand, it is possible to create a series of trusts on successive days by settling assets with a total value across all the trusts within the NRB. The benefit of this approach becomes apparent at the first 10 year anniversary when each trust is treated as having its own NRB for the purposes of the IHT calculation. The result is that there is a far greater headroom for assets increasing in value before an IHT charge arises (although in truth this approach is quite unwieldy and the extra costs need to be weighed carefully against the benefits).

The proposed rules allocate only one NRB to a settlor that he or she must then “elect” to split between trusts created after 6 June 2014. Trusts created before 6th June will retain their NRB, but the proposals would apply to property to them added after 6 June 2014.

The consultation document retains the proposal to apply a flat charge of six per cent to all 10 year anniversary or exit charge calculations.

The closing date for responses is 29 August 2014.

Key contact

Tom Hewitt

Tom Hewitt Partner

  • Private Wealth
  • Head of Estates and Land
  • Head of Food and Farming

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