U turn on introduction of single settlement nil rate band
In a surprise move late last year, the Government announced that the planned introduction of the single settlement nil rate band, scheduled for introduction later this year, was to be shelved.
Up until June last year, it was possible to set up multiple lifetime (usually pilot) trusts, which would then allow the client to transfer up to the nil rate band into one trust every seven years without incurring chargeable lifetime transfer tax, payable at 20%. So, every seven years, the client would in effect be able to shelter £325,000.
The original announcement was for the introduction of one nil rate a single nil rate band but this was to be spread over every trust set up by the client during their lifetime. In other words, the plan would have only allowed the client to transfer into trust up to £325,000 during their lifetime without a chargeable lifetime transfer tax being applied to subsequent transfers.
The initiative was worse than that – the commencement date of the single settlement nil rate band was retro-active back to June 2014. So, from that date anyone who was setting up multiple trusts would have only had one nil rate band to play with from that point on, thus eliminating a valuable tax planning tool, way before it had been passed into law by this year’s (2015’s) Finance Act.
Of course, those who relied on the HMRC announcement and discontinued this planning in reliance of the implementation of the single settlement nil rate band into law, are the ones who have been compromised most – the opportunity to use multiple trusts had been closed but in fact it appears that the strategy could have been adopted during this time period.
However, there are still changes being introduced from the amendments to the Finance Bill. Although once again, there are headline announcements, they are short on specifics and we are left making assumptions on what they mean.
New rules will be introduced whereby when property is added to non-related trusts on the same day for inheritance tax avoidance the values of the gifts into those trusts will be aggregated, along with original trust assets within those trusts, for relevant property regime taxation calculations.
The effect from our point of view is where a Will settles property into multiple trusts. An example might be where a Will gifts £200,000 into pilot trust A (set up on 25th January 2014) and makes a gift of £100,000 into pilot trust B (set up on 3rd October 2014) with £100,000 into a Will discretionary trust.
It appears that the value of these trusts will be aggregated for the calculation of relevant property regime charges. So, at the minute it looks like settling assets into multiple trusts through a Will may have adverse tax consequences, but until more information becomes clear it is difficult to predict what those consequences will be. More to follow on this point, but it is recommended clients’ Wills are reviewed where they gift into multiple lifetime trusts.
HMRC have also flagged that they will be more aggressive in examining trusts and their consequent tax positions.
For any concerns about planning your estate, as a Will writer in Bexhill, Hastings, Battle, Rye area or anywhere else in Sussex and Kent, just contact me and I'll be happy to answer you questions.
This message was added on Thursday 29th January 2015
