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HMRC have announced they have launched what has been described as the biggest review of trusts in years, which is to investigate how fair and fiscally neutral they are. Raised in the Autumn 2017 budget, according to the HMRC paper the consultation will set to make the taxation of trusts simpler, fairer and more transparent. The document has a focus on trusts used specifically for inheritance tax purposes as potentially offering an unfair advantage to those using them.
HMRC is concerned that the trusts are letting some families pay less inheritance tax than those who do not pay professionals to set up such complex arrangements. Trusts used by hundreds of thousands of taxpayers to bequeath their wealth could be reformed so they no longer offer a tax advantage.
Inheritance tax trusts allow individuals to move wealth out of their estate, on which inheritance tax is usually paid at 40 per cent on wealth above £325,000 after they have died.
Despite wealth being held in trusts usually being free from inheritance tax, they can be subject to a number of other tax charges which can often be smaller than the inheritance tax bill would have been had the trust not existed. If the HMRC review finds these taxes are smaller than IHT they could choose to reform these trusts, meaning some families could pay more inheritance tax.
Over many decades trusts have been set up in various forms by hundreds of thousands of families attempting to pass on their wealth to their loved ones. Arrangements such as these have historically provided tax advantages, but trust benefits have changed as tax regimes have evolved over the years.
Trevor Cross, BTWC MD says “Trusts have long been a mechanism for families and individuals to allocate and secure assets for family members, with some scenarios meaning they may be free from inheritance tax. Trusts can provide peace of mind for a lot of people. We will see with time as to the impact of the consultation and if it will indeed leave families worse off, or with clearer transparent rules around trusts.”
The HMRC consultation will end in January 2019 – you can read the initial document here.
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