Further HMRC consultation on settlements

Further HMRC consultation on settlements

Increased tax charge on multiple settlements

HMRC has issued a consultation on simplifying the Inheritance Tax charges on trusts (the ten yearly periodic charge and exit charge) and has identified the following areas for simplification:

Simplifying the calculation of Inheritance Tax trust charges by:

  • ignoring historical information and details of property held in settlements that are not subject to Inheritance Tax trust charges (non-relevant property).  This would be good news
  • however, to counter-balance this, the consultation proposes that the nil rate band (NRB) is shared between the number of relevant property settlements created by the settlor
  • using a simple rate of 6% in the calculation of periodic and exit charges

Although the above changes would mean that the Inheritance Tax charge calculations would be simplified and made less onerous, it is likely that in many cases that if a settlor has created more than one settlement then the Inheritance Tax charge will be greater.

There are also proposals relating to:

  • standardising the treatment of accumulated income within a settlement
  • aligning the dates for filing and payment for the periodic and exit charges, and suggest an alignment with the self assessment framework used for Income Tax and Corporation Tax

The consultation suggests the introduction of legislation in the 2014 Finance Bill.  It is not possible to alter the date of the ten yearly periodic charge; but it will be worthwhile considering whether property should be advanced before March 2014, if the exit charge calculated using the existing rules makes this attractive.  Of course, this may be contrary to the original purpose for holding the capital in the settlement and may make for difficult decision making by trustees.

Caroline Lovibond can be contacted on 01865 261100 and caroline@landtax.co.uk about the contents of the above article.