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IFAs warned of IHT hit on related trusts

Scottish Widows tax expert tells Falcon Group IFAs to beware of racking up chargeable transfers.

Scottish Widows is warning advisers of the dangers of setting up related trusts for inheritance tax purposes.

Senior technical manager Anne Young told IFAs at Falcon Group’s annual conference last week that if they write related trusts – set up by the settlor on the same day – their clients could incur greater chargeable lifetime transfers.

She says IFAs are often tempted to set up trusts at the same time because they have the client in front of them, making better use of time.

Young says this is dangerous as there is a greater chance of periodic charges being incurred.

She suggests setting up several smaller trusts rather than big ones, saying a trust of £250,000 is more likely to incur a periodic charge by hitting the nil-rate band at the 10-year anniversary than several smaller trusts totalling the same amount.

She also flags the importance of order when setting up numerous trusts and says a loan into trust for a spouse rather than a gift could prevent increasing the value of the surviving spouse’s estate and reduce IHT bills on the second death.

Following HM Revenue & Customs’ recent notice on gifts to minors, Young says advisers should avoid all bare trusts to minors until the Government has clarified its position.

Young says: “My suggestion is never, never, never do related trusts. You are far more likely to hit the nil-rate band and incur a chargeable transfer if you do related trusts. Even if they are set up a day or two apart, it is better than on the same day.”


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