The Inland Revenue has confirmed it will not tax trusts where the settlor retains control over the t...
The Inland Revenue has confirmed it will not tax trusts where the settlor retains control over the trust, even though the Court of Appeal has given it the power to do so.
A recent judgment in the case of Melville v Inland Revenue was phrased in such a way as to suggest all powers of access and decision-making to a trust would have to be transferred to a third party once set up by an individual, or be liable to inheritance tax.
The Revenue issued Briefing Note 19 last week, designed to outline how it will interpret the Melville decision.
This included the sentence: 'The court of appeal found that powers over trusts are potentially valuable property for inheritance purposes.'
This was previously been thought not to be so by the Revenue and many tax practitioners.
The briefing also said: 'The measure provides that powers over trust property are to be disregarded for inheritance tax purposes, so reversing the effect of this decision, except where doing so would create new scope for tax avoidance purposes.'
Until now, there have been fears within the financial services industry that an individual would no longer be able to limit the inheritance tax liability by placing assets in trust yet retain powers over the trust until death.
Melville was taken to court for transferring assets into a trust to avoid paying CGT and inheritance tax.
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