Reactions coming in on the Finance Bill's suggestion earlier today that IHT on trusts will not apply retrospectively have been mixed so far.
Standard Life, which suspended its bond trust plans in light of the Budget, says the latest guidance note from HM Revenue and Customs expressly states “there is no retrospective tax charge”, which it interprets as meaning only new trusts will be affected by the Bill.
Still, the life company is sufficiently wary to add: “the next step is for us to ensure that this is actually the case as we work through the detail in the coming days.”
“We are, however, pleased to have had early confirmation that absolute trusts are outside the scope of the new rules.”
John Riches, chair of the Technical Committee of the Society of Trust and Estate Practitioners (STEP) is less sanguine.
In a statement published today, he dismisses the government’s view that only a limited number of trusts, perhaps 20,000, will be affected because this view appears based on counting only those trusts submitting tax returns while overlooking trusts written into wills.
Riches says despite the new guidance “over a million wills are still going to have to be rewritten to ensure that spouses aren’t taxed on the death of their partner if they are left assets in trust.”
“Even relatively simple wills will need to be rewritten where they leave assets to children older than 18.”
"Paradoxically, if you die without making a will and have assets over a certain amount, the law of intestacy automatically creates a tax-free trust to protect your partner. However, intestacy trusts rarely meet the objectives of protecting a spouse and children in an appropriate way.”
Riches says the government should tackle “unacceptable” tax avoidance in other ways, without penalising spouses.
On the issue of children, STEP adds that what seems to be the government’s desire to force trusts to pay out to children at age 18 instead of age 25 with a tax penalty goes in the face of a genuinely held opinion of many advisers that parents do not wish to give money at that age because they would rather wait until their children are more mature.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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