As announced in the 2013 Autumn Statement, legislation will be introduced in Finance Bill 2014 to simplifying filing and payment dates for IHT-relevant property trust charges.
Legislation will also be introduced to treat income that has arisen in such trusts but which remains undistributed for more than five years as part of the trust capital when calculating the ten-year anniversary charge.
Finally, the Government has announced a further consultation on proposals to split the IHT nil-rate band available to trusts with a view to delivering this change alongside simplification of the trust calculations in 2015.
This simplification has largely been welcomed although some concerns remain regarding whether the drafting of the legislation on undistributed income goes too far and represents an aim to raise revenue rather than purely simplify existing legislation.
The decision to extend the period of consultation on the splitting of IHT nil-rate bands has also been well received with groups welcoming the opportunity to contribute to a fair and workable regime. However, the concern remains that these changes will significantly impact the use of ‘pilot trusts’ which have been popular in recent years.
Vulnerable beneficiary trusts
As announced in the 2013 Autumn Statement, the CGT ‘uplift’ provisions that apply on the death of a vulnerable beneficiary are extended as are the range of trusts that qualify for the special income tax, CGT and IHT treatments currently accorded to vulnerable beneficiary trusts.
The income tax, CGT and IHT treatment of a trust for a vulnerable beneficiary results in tax liabilities for the trust being effectively calculated as if the trust was being assessed as the vulnerable beneficiary, with relief given for personal income tax, CGT and IHT allowances and exemptions.
The announced changes are necessary as the tax definition of ‘vulnerable beneficiary’ is linked to the definition under the entitlement to certain benefits which have changed, for example the change from the ‘disability living allowance’ to personal independence payments.’
As noted when these announcements were made in the Autumn Statement, it is recommended that all trusts for vulnerable beneficiaries are reviewed to ensure they continue to qualify or to confirm that they are brought into the scheme when previously they did not qualify.
If you have any queries please contact Lynn Green, Trust Partner.
For the full 2014 Budget Summary please click this link BWM 2014 Budget Report