The Autumn Statement on 3 December confirmed (albeit hidden deep in the ‘green book’) that the proposed introduction of a Settlement Nil Rate Band (SNRB) for inheritance tax purposes was to be abandoned. On 10 December, HMRC published its formal response to the SNRB consultation in which it explained: HMRC has listened to feedback from the consultation and appreciates that the proposal to introduce a SNRB would have far reaching consequences. While it would help to bring parity between property given away over a life time and property given away on death, it could be seen to create a divergence between the rules for property given away absolutely and property held in trusts. It is not HMRC’s intention to discourage the use of trusts and HMRC understands the majority of trusts are created for reasons outside of tax planning. (Para 3.19) Therefore, after listening to feedback from respondents the Government has decided to not introduce a SNRB. (Para 3.20) On the same day details of the new rules to replace the SNRB idea were published. There are two new provisions directly relevant to the calculation of a trust’s periodic charges, as follows:
- The requirement to include non-relevant property in the calculation of the rate applicable to ten yearly and exit charges will be removed. This will particularly assist old ‘accumulation and maintenance’ settlements which have fallen into the relevant property regime and where it is not unusual for there to be a mix of relevant and non-relevant property.
- Additions to more than one settlement on the same day will have to be aggregated. This will block the use of multiple pilot trusts subject to one important caveat. Where property is added by Will before 6 April 2016 and where the Will was executed before 10 December 2014 (the date of the announcement) there will be no aggregation. This means that the multiple pilot trusts planning can still work where the trusts are to be funded on death not during lifetime, as long as the relevant Will was already in place and the death occurs before 6 April 2016.
In addition, a number of miscellaneous changes were announced at the same time:
- Claims for ‘conditional exemption’ will be able to be made within 2 years of a ten yearly charge instead of this needing to be done in advance of the charge.
- Section 144 will be amended so that the provisions which prevent a charge to tax arising in the first three months after the settlement commenced, or within a ten-year anniversary, shall not apply to appointments out of a Will Trust. This will ensure that where an appointment is made within three months of the date of death in favour of the deceased’s surviving spouse or civil partner, it can be read back into the will and ‘spouse exemption’ can be given.
- Section 80 IHTA will be amended so that “a qualifying interest in possession” is substituted for “an interest in possession”. This appears to correct an anomaly in relation to changes to trust taxation made back in 2006.
For further details on any of these changes or for general advice on inheritance tax or trust taxation please call the TaxDesk on 0845 4900 509 and ask to speak to Lawrence Adair.