Inheritance Tax trusts
Major changes to the IHT rules for trusts took effect from 22 March 2006. A trust is an obligation that binds a trustee, an individual or a company, to deal with the assets such as land, money and shares which form part of the trust. The person who puts assets into a trust is known as a settlor and the trust is for the benefit of one or more ‘beneficiaries’. The trustees make decisions about how the assets in the trust are to be managed, transferred or held back for the future use of the beneficiaries.
There are three main situations when Inheritance Tax may be due on trusts:
- When assets are transferred – or settled – into a trust.
- When a trust has been in existence for ten years.
- When assets are transferred out of a trust or the trust comes to an end.
HMRC has issued a new consultation looking at simplifying the calculation of Inheritance Tax charges to which trusts are subjected at ten-yearly intervals and when property is withdrawn from a trust. This consultation builds on two earlier consultation documents and focuses on simplifying the trust charge calculations for relevant property trusts and how the nil-rate band should be applied to such charges.
Property in the following types of trust doesn’t count as relevant property:
- interest in possession trusts with assets that were settled before 22 March 2006;
- an immediate post-death interest trust;
- a transitional serial interest trust;
- a disabled person’s interest trust;
- a trust for a bereaved minor; and
- an age 18 to 25 trust.
The consultation is open for comment until 29 August 2014 and draft legislation is expected to be published in the autumn.