Budget 2015: Further changes to inheritance tax on trusts

Relevant property trusts are subject to a separate inheritance tax charging regime which applies on each ten year anniversary and when capital leaves the trust.  As part of a consultation process on simplifying charges under the regime HMRC looked at how to counteract the use of ‘pilot trusts’.

The aim of these trusts was to reduce the charges arising by creating a number of nominal trusts on different days before later adding substantial funds to the trusts on the same day, usually on death.  Following the 2014 Autumn Statement, draft legislation detailing a specifically targeted anti-avoidance rule was published to counteract the inheritance tax advantages of pilot trusts.

Broadly, this rule aggregates ‘same-day additions’ to trusts for the purpose of calculating inheritance tax charges, with a transitional rule for transfers on death pursuant to Wills executed pre-10 December 2014 (the date the draft legislation was first published).

The following amendments are being made to the draft legislation relating to the targeted anti-avoidance rule:

  1. The rule will only apply if property is added to more than one relevant property trust on the same day.
  2. Same-day additions totalling £5,000 or less will be excluded from the rule.
  3. The transitional rule for same-day additions on death pursuant to a pre-10 December 2014 Will is being extended by 12 months to include transfers on deaths up to 6 April 2017.

These changes to the legislation will slightly restrict the scope of the targeted anti-avoidance rule.  The £5,000 exclusion in particular is aimed at situations where funds are added to a number of trusts on the same day, to meet fees for example.