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Skandia warns multiple trust clampdown will be retrospective

Skandia is warning some clients will face large tax bills after the Treasury confirmed it will stop trusts benefiting from multiple inheritance tax nil rate bands.

In the Autumn Statement yesterday, the Treasury said it will stop multiple trusts from having individual IHT limits from 2015 as part of a simplification of the trust system, following a consultation in May

The final details still have to be set out but Skandia says any rules would have to apply retrospectively or it would not amount to a simplification.

Skandia says setting up trusts on different days, each below the £325,000 IHT limit has proved a popular wealth planning strategy for many advisers and clients over the years. The new proposals could introduce a single nil rate band across all trusts.

This proposed change in legislation means these trusts may now face a 6 per cent tax charge at the 10 year periodic charge point.  

Skandia head of wealth planning Colin Jelley says: “This new piece of legislation looks set to have a significant impact on existing trusts.

“Client’s existing arrangements will need to be reviewed to ensure they are structured in the most tax efficient way possible.

“Although the proposed change in legislation means a greater tax liability for some trustees, the benefits of trusts for estate planning purposes remains and, set up in the right way, clients can still benefit greatly.”

Example where four trusts have been created 

*Uses a maximum 6% tax charge as proposed in the consultation paper. Source: Skandia
    Current legislation Proposed legislation
Trusts:  Value: Nil rate band 10 year tax charge Nil rate band 10 year tax charge*
1 £320,000 £325,000 £0 £81,250 £14,325
2 £320,000 £325,000 £0 £81,250 £14,325
3 £320,000 £325,000 £0 £81,250 £14,325
4 £320,000 £325,000 £0 £81,250 £14,325
Total £1,280,000   £0   £57,300

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