Multiple trusts and IHT planning

In 2013, a consultation to deter inheritance tax (IHT) mitigation through the use of multiple trusts was published by the Treasury, proposing blocking this type of legislation. However, it was confirmed in last week’s Budget that estate planners can still continue to use multiple trusts to mitigate inheritance tax, provided they are set up and funded on different days.

The new legislation, published this week (15^th July), is slightly modified from the draft form previously published in 2014.

Individuals who settle multiple trusts will no longer have an unlimited number of IHT nil-rate bands, but they will still be able to settle property up to the value of the nil-rate band into trust every seven years.

The measure limits the use of the established ‘Rysaffe’ tax planning strategy under which a settlor could create multiple pilot trusts and settle a fraction of his or her estate into each one. In such a scheme, each trust was entitled to its own full IHT nil-rate band, provided the trusts were established on different days.

The new changes apply from 6^th April 2015 to all IHT charges arising on trusts to which ‘same day’ transfers have been made, but trusts established before 10^th December 2014 are protected, provided the settlor has not made further ‘same day’ additions to them since that date, or if the additions do not exceed £5,000. There is also a transitional protection for those who make transfers into multiple trusts on death, provided their wills were drawn up before 10^th December 2014; the new rules will not apply to the trusts where death occurs before 6^th April 2017.

The legislation will also modify the periodic IHT charges imposed on relevant property trusts. It will no longer be necessary to include non-relevant property in the calculation of ten-year anniversary charges or exit charges arising on, or after, 6^th April 2015, regardless of when the trust was created.

A further concession is granted for appointments out of property settled by a will. This will ensure that, where an appointment is made in favour of the deceased’s surviving spouse within three months of the death, it can be read back into the will and exempted from the tax charge.

Law firm, Withers, describes it as ‘good news for trusts’.

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