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Life policyholders facing penalty in IHT crackdown

Life insurance policyholders with money held in trusts could be penalised by the Chancellor&#39s latest measures to toughen up on inheritance tax avoidance.

Gordon Brown&#39s 2004 Budget includes tighter restrictions for investors using complex double-trust schemes to escape IHT.

The schemes allow an investor to carry on living in their property while having given the bulk of its value away for inheritance tax purposes.

The Treasury is clamping down on the loophole, hitting investors with stamp duty and pre-owned asset tax from April 6, 2005. The move will hit pre-existing schemes, some of which have been established for several years.

But tax planners believe that, in their current form, the proposals could have an impact on other trusts, including those used for lump sum and regularpremium life insurance policies.

More details are expected in the Finance Bill due to be published this month.

Scottish Widows senior technical manager Anne Young says: “IFAs need to take care and hold off from setting up these types of trusts at the moment. This is a matter of waiting a few weeks for clarification. It may be that some existing trusts can be unwound before the deadline.”

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