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Possible Clampdown on Inheritance Tax Reduction Planning Involving Trusts

The eagle-eyed may have spotted a short article in the Telegraph Money section on 2 November 2013. This reported the possibility of a clamp-down by HMRC on Inheritance Tax (IHT) reduction planning involving trusts.

The Telegraph says it’s learned that multiple trusts (known in the IHT planning world as Rysaffe trusts) will be charged to IHT as a group rather than individually. They say this is likely to be announced in the Chancellor’s autumn statement (4 December). If this happens, the increased IHT revenues for HMRC from such trusts could be considerable.

However, the most important thing is not to panic! Standard IHT planning for married couples or registered civil partners involving one nil rate band discretionary trust arising on first death, would not be hit by such a change.

HMRC are after the slightly more exotic. They want to eliminate the benefits available to multiple trusts. These are arrangements involving a number of trusts (created on separate days) where each trust holds assets worth no more than one nil rate band in value at the time any IHT charge falls due (principally on the tenth anniversary of such a trust being fully funded).

If/when the change comes – remember to clock the use of language. HMRC have for a while been engaged in a consultation exercise on such trusts (the technical term for which is “relevant property trusts”). Their stated objective in the consultation is one of “simplification”. More cynical observers say that “simplification” is usually code for increased taxation. There may be some tinkering at the lower end that simplifies or eases the tax burden on relevant property trusts. Nevertheless, if this change is made, I think the cynics would be proved correct. 

Also expect any HMRC press releases to talk about any changes only affecting a tiny minority who are super rich or tax avoiders. But bear in mind that Rysaffe trusts follow clear legal precedent and, when I last looked at HMRC’s own guidance (which was only a couple of weeks or so ago) they refer to them as being non-abusive.

Watch this space!