business & tax

Guide to Trusts - Expert Tax and Estate Planning Advice Trusts - A Warning:

The Chancellor changed the rules on the taxation of trusts in his budget speech on 22 March 2006 to bring many trusts and their inheritance taxes liability in line with discretionary trust taxation.

Existing Trusts:  This area is extremely complex and we suggest that you seek advice from us before amending any existing trust.

• Absolute or Bare Trusts  - If you had an Absolute or Bare trust set up before 22 March 2006 generally the trust is unaffected.
• Flexible Trust or Interest In Possession Trusts  - If you had a Flexible Trust or Interest In Possession Trust set up before 22 March 2006, care should be taken not to change the life tenants in this trust unless you amend the interest to an absolute, non-reversible status, as any change could trigger tax issues (October 2008 deadline to make changes)
  
• Discretionary Trusts  - If you had a Discretionary trust set up before 22 March 2006 generally the trust is unaffected, you still potentially get caught for taxes under chargeable lifetime transfers rules as you did before.

So What Has Changed Since 2006?

• Gifts into a trust are no longer Potentially Exempt Transfers (PETs)
• Gifts into a bare trust (an absolute trust) are still a Potentially Exempt Transfer PET because it is a gift to an individual absolutely.
• Gifts into a disabled trust are still deemed as Potentially Exempt Transfers PETs
• Gifts to flexible trusts, interest in possession trusts and to accumulation and maintenance trusts are no longer treated as potentially exempt transfers, they are treated in the same way for tax as discretionary trusts.

This means that any gifts to these types of trusts are now potentially chargeable to tax at the lifetime transfers tax rates when they are made.

This is a highly complex area of financial and tax advice. 

Request expert inheritance tax advice today.