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Jelley says IFAs must be aware of Phizackerley implications

The high-profile Phizackerley ruling on inheritance tax and will trusts has far-reaching implications for all trusts making loans to beneficiaries, warns Skandia.

The Phizackerley case involved the use of a share in the family home within a will trust but Skandia says the same principles can be applied to any trust arrangement where a beneficiary receives a loan from the trust rather than receiving a sum of money outright.

Issuing loans is a common financial planning strategy because if the beneficiary dies, their taxable estate is reduced by the repayment of the loan to the trust.

Head of tax and financial planning Colin Jelley says when setting up any trust arrangements, including discounted gift trusts, loan trusts and will trusts, advisers must remember to ask whether the settlor’s spouse or any other beneficiary of the trust have made substantial prior gifts to the settlor at any time since Budget Day 1986 and ensure this is factored into their recommendations.

Jelley says with residential property accounting for over 40 per cent of all assets on which IHT is paid, the Phizackerley case is the latest in a long line of signals that the Government is wary of IHT schemes involving the family home.

He says: “This is likely to increase the focus on IHT planning strategies which involve investment portfolios rather than bricks and mortar.

“However, this case also has wider implications for other trust arrangements making loans to beneficiaries.

“Advisers must remember that any prior substantial gifts from the beneficiary to the settlor may limit the effectiveness of this planning strategy.”


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