10 Mar Spring Budget 2015 – New rules for multiple trusts
As announced in the December 2014 Autumn Statement, legislation will provide new rules about adding property to trusts on the same day, to target Inheritance Tax avoidance through the use of multiple trusts (based on the principles established in the Rysaffe case and commonly known as pilot trusts), which could mean that each pilot trust had its own nil rate band without reference to the other trusts.
Draft legislation was published on 10 December 2014, although this was not included in the March 2015 Finance Bill but will be included in a future Finance Bill, presumably because there is not cross-party support for this measure. There may therefore be further amendments to this legislation, depending upon the next government.
The new rules currently proposed will normally apply to transfers from 10 December 2014, but only when property is added to more than one relevant property trust on the same day. There is to be a relief so that where the value of the addition is £5,000 or less it will not be treated as a same day addition, to avoid the situation where, for example, additions are made by the settlor on the same day to a number of trusts for say, trustee fees.
This measure removes a well established method of mitigating the future Inheritance Tax liabilities of multiple trusts created by the same settlor, but is a more sensible approach than the previously announced proposal of a single Nil Rate Band for all trusts created by a settlor after June 2014, which has now been withdrawn.
However, the potential benefits of pilot trusts will continue until 6 April 2017 for additions to existing trusts arising from a Will executed before 10 December 2014. This “period of grace” for not applying the new rules has been extended by 12 months from the original proposal. Therefore, if you have previously created pilot trusts to receive assets under your Will on death, it may therefore be beneficial to leave this structure undisturbed at present, but as the Inheritance Tax advantages of the pilot trust structure will cease after 5 April 2017, it will be worth reviewing your Will and whether the pilot trusts should be terminated in the meantime.
As previously advised, the calculation of trust charges from 6 April 2015 is simplified by removing the requirement to include non-relevant property in the computation (subject to inclusion in a future Finance Bill), which is a welcome change.