HMRC’s consultation on amending the periodic and exit charges on relevant property trusts, which ended last week, has attached some criticism.
The key proposal is to split the inheritance tax nil-rate (NRB) between all trusts set up by the settlor, instead of the current system under which each separate trust is entitled to a full NRB of its own. The amended rules would apply to both new and existing settlements from a given date.
According to the Institute of Chartered Accountants in England and Wales (ICAEW), this measure would make the periodic charging regime even more complex, rather than simplifying it, which was the ostensible purpose of HMRC’s proposals.
The ICAEW’s tax faculty points out that the proposed amendment does not include any de minimis provision. ‘As trusts of negligible or nil value, such as life insurance trusts, will also be included, the proposals will result in higher and inequitable charges on trusts,’ it says. ‘This is more of a revenue-raiser than a simplification’.
The proposal will simply replace one set of complex rules with another that are potentially even more onerous , says the ICAEW.
Another of HMRC’s proposals is that undistributed income be treated as capital after two years. However, as ICAEW points out, many trusts are set up with the aim of providing help in the long term, and thus they accumulate income for a rainy day.
Legislation on the proposals is likely to be introduced in the 2014 Finance Bill.
For further information please contact Lynn Green, Trust Partner.