Trusts will see significant changes following the Budget, with Alistair Darling's tax on the rich also hitting their estates.
Tax rates on trusts were already due to increase from 2011, but the latest hike in income tax, up to 50% for top earners, will hit beneficiaries hard.
Hidden away in the Budget notes are details of the new higher rates of tax faced by all trusts, and some changes to the way discretionary trusts are taxed and distributed.
Julie Hutchison, head of estate planning at Standard Life, says: "This acceleration and increase in these trust tax rates is not good news for discretionary trusts."
Most trusts will automatically pay the 50% tax rate without needing to reach the £150,000 threshold, however, because discretionary trusts are affected by the threshold, they will be most impacted by the Chancellor's new taxes, according to Hutchison.
From April 2010, dividend trust rates will increase from 32.5% to 42.5%, while the trust tax rate climbs from 40% to 50%.
Hutchison says beneficiaries will need to get used to small income distributions in the future. However, those holding investment bonds will be able to enjoy an even bigger tax deferral from next year.
"Arguably, this Budget represents a missed opportunity for a more fundamental review of inheritance tax," Hutchison adds.
"It is not generally viewed as a popular tax by consumers, and many say the time is ripe for a fundamental reassessment of how it fits with our system of taxation of income and gains. This Budget was probably the most favourable opportunity the Labour government had to revisit the structure of IHT, with its Budget focus on 'fairness'."
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