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Tax alert on absolute trust gifts to minors

Skandia is warning that gifts being made into absolute trusts could be stung by ano-ther stealth tax if the beneficiary is under 18.

HM Revenue & Customs has confirmed to Skandia that gifts to minors through absolute trusts will be treated as chargeable lifetime transfers rather than potentially exempt transfers because the child can only access the trust when they are 18.

Skandia says this means that the CLT will be hit by entry, 10-yearly periodic and exit charges whereas gifts to adult children will be trea-ted as Pets, avoiding these tax charges.

Head of tax and financial planning Colin Jelley says many people prefer to make gifts to minors in trust because the children are too young to manage the money appropriately.

He says if a parent or grandparent makes a gift to two children simultaneously – one under 18 and one over 18 – the former will be hit by the CLT charges while the latter will be trea-ted as a Pet and be exempt. Simil-arly, Jelley says differences between the laws in England and Scotland could cause confusion. A minor domiciled in England can access an absolute trust aged 18, whereas in Scotland they can from age 16.

Jelley says if a parent or grandparent made concurrent gifts to two children each aged 17 – one living in England and one in Scotland – the former would be treated as a CLT while the latter would be treated as a Pet.

Jelley says: “This affects anyone who is saving money for children and has set up a trust to protect them. This must surely be an uninten-ded consequence of the changes introduced in last year’s Finance Act. From an IFA’s perspective, it is a case of not letting the tax tail wag the financial planning dog.”


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