industry welcomes long-awaited increase but says it should have been backdated
A move by HM Revenue & Customs (HMRC) to increase the reporting thresholds for gifts to most trusts should have been introduced earlier, according to life companies.
HMRC has confirmed that from the tax year 2007/8, its intention is to increase the reporting threshold for Chargeable Lifetime Transfers (CLTs) made by an individual in any one year from £10,000 to £200,000 and from £40,000 to £250,000 for CLTs made over a 10-year period. It intends to consult on the proposed increases with a view to implementing change later in 2007.
However, despite indicating during the Finance Bill passage through Parliament that taxpayers could expect change in the autumn of 2006, HMRC has not been able to change the limits in time for this year.
For tax year 2006/7, the situation remains that CLTs made by an individual over £10,000 in a single year or over £40,000 in a 10-year period will need to be reported. Where tax is payable, this must be paid within six months of making the gift.
Colin Jelley, head of tax and financial planning at Skandia, welcomed the increase in the reporting threshold. He said: "It is unfortunate however, and somewhat disappointing, that this announcement is still only an indication of future plans and that it is too late for those who have created trusts since the last Budget. As a result, thousand of trusts will have to incur compliance costs where no tax will ever be raised. HMRC will also incur costs in dealing with this paperwork."
Julie Hutchison, estate planning specialist at Standard Life, said the current reporting levels created problems for both taxpayers and HMRC because of the unnecessary paperwork required for very small gifts.
She said the change would significantly reduce the administrative burden for tax payers and their advisers. She added: "The new levels announced will remove a huge compliance burden for many clients making gifts to a trust, but I will reserve final judgement until the details of the regulations are released.
"For example, I will be keen to see what this means for the reporting requirements for trustees at 10 year anniversaries, which should also be addressed and removed for trusts which do not face an IHT bill in year 10."
Gerry Brown, technical manager at Scottish Life International, said he could see no reason why the proposed increase in limits could not have been backdated to 6 April 2005.
He said: "Those individuals who put off reporting transfers, in the expectation that the limits would be retrospectively increased, should contact their professional advisers so that the statutory requirements can now be complied with. The time needed to complete the relevant forms will be significant."
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