Trusts and IHT….Help
The UK tax system is complicated, so no wonder the Office of Tax Simplification (OTS) was established to give independent advice to the government on making things easier for taxpayers. Consider Inheritance Tax (IHT), the OTS has issued two reports on the complexities of the regime and makes a comment we can all sympathise with.
“The Inheritance Tax rules applicable to trusts are not straightforward. Most individuals do not understand how trusts are used and have no knowledge of how they are taxed. It is not uncommon for experienced advisors to make errors as the Inheritance Tax charged on trusts is difficult to calculate.”
A case in point is the 10 yearly charge which potentially applies to most flexible trusts. It arises under what’s called the ‘relevant property regime’. The OTS observe that the 10 yearly charge calculation is too complex. Its suggestion is that the IHT treatment of trusts should be addressed by the separate HMRC trust consultation, running in parallel, which has a wider remit and so can consider IHT in the round alongside income tax and capital gains tax paid by trusts. The trust consultation closed on 28 February 2019. We will need to wait and see if the government is minded to propose any specific changes based on the suggestions received.
In the meantime, here are 10 pointers to help you with the IHT regime applying to discretionary trusts.