View more on these topics

Concern IHT ‘pilot’ trust tax change could be retrospective


Concerns have been raised that changes to the inheritance tax treatment of ‘pilot’ trusts could be applied retrospectively.

HMRC is consulting on chang-ing the rules on pilot trusts so the £325,000 nil-rate inheritance tax allowance, as it applies to the 10-yearly 6 per cent charge, is split between the number of trusts rather than the full allowance being applied to each trust.

Skandia head of wealth planning Colin Jelley says HMRC has not been clear on whether it would be applied retro-spectively to existing trusts.

He says: “The Government does not like the idea of retrospective tax changes, but the idea of this consultation is to simplify the tax treatment of these things and, if you only do it for the future, that leaves a lot of people’s arrangements

Axa Isle of Man technical manager Simon Martin adds: “If this is applied retrospectively it would cause big problems for existing tax plans. If it is not, HMRC risks ending up with two sets of rules and more complexity than before the change – the exact opposite of what it wants to achieve.”

Pilot trusts are set up ahead of death and kept open, usually with a very small deposit. 

Under current rules, on death and after payment of the initial rate of 40 per cent on anything over the £325,000 threshold, inheritances can be split up and moved into a number of these trusts. As long as they are established on different days, each trust can be treated as a completely separate pot in relation to the 10-yearly charge of 6 per cent, each with its own £325,000 allowance.

The consultation closes on 23 August and any changes will be introduced through next year’s Finance Bill.

An HMRC spokesman says: “No decisions have been made. The consultation proposes a number of options and we welcome contributions from anyone with an interest.”

Inheritance tax and pilot/multiple trusts

  • In 2003, Guernsey-based Rysaffe Trustees won a case against HMRC. It set the Rysaffe Principle, which holds that if an individual sets up several pilot trusts on different days, as long as each trust is below the £325,000 inheritance tax threshold, they would not be caught by the 10-yearly 6 per cent charge.
  • In April, HMRC published examples of how the principle would
  • be treated under the GAAR. HMRC said because it had not chosen to change legislation it “must be taken to have accepted the practice”.
  • In May, HMRC published a consultation on splitting the £325,000 nil-rate allowance between trusts, even if they were established on different days. It closes on 23 August. Any changes HMRC wants to introduce will then be legislated for in next year’s Finance Bill, which will follow March’s Budget.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm