The Inland Revenue has lost a case against a taxpayer in which it was trying to close what it deemed...
The Inland Revenue has lost a case against a taxpayer in which it was trying to close what it deemed to be a loophole in trust structures involving avoidance of inheritance tax.
The Special Commissioner decided against the Inland Revenue, which has challenged an anonymous taxpayer's rights to be able to get a benefit from an asset that was passed on via a trust structure and avoid paying the inheritance tax. The case hung on the exempt transfer regime.
For example, married couples wanting to make a potentially exempt transfer and avoid inheritance tax can use a trust to do this. An illustration of this would be one member of the couple leaving a house to the remaining spouse within a trust. The house would be IHT-free on death. However, if it was outside the trust IHT would be payable.
But Clerical Medical stressed that the recent ruling was only the first stage of the legal process. Michael Greenwood, trust and estate planning manager, at Clerical Medical, said: 'The Inland Revenue is likely to take this case to the courts and if it continues to lose it may change the legislation to close off this avenue altogether.'
He added that this type of planning should be carried out over a long period. He said: 'It's not a case of 'rush in now while stocks last', this kind of planning needs to be set up very carefully.' Other providers who offer this type of trust include Skandia, Norwich Union, Scottish Equitable and Clerical Medical
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