The changes affect accumulation
and maintenance wills (A&M), and interest in possession
wills. In addition some life assurance policies written into
trusts could be affected.
A&M trusts were commonly used by parents
or grandparents who wanted to give money to children, however
they would retain control of the trust’s income until
the beneficiary’s 25th birthday, and the capital for
up to 80 years. Before the Budget, gifts into A&M trusts
made during someone’s lifetime were exempt from inheritance
tax (IHT) if the donor lived for another seven years.
Now however you must pay IHT at 20 per cent
on the value of the gift above the IHT threshold (currently £285,000).
The trust’s assets are also subject to a six per cent
charge every ten years.
Interest in possession wills are used by
people wishing to provide for their spouse, while making
sure their capital is passed to their children should the
spouse remarry. These were previously exempt from IHT but
will now be subject to 20 per cent tax above the £285,000
IHT threshold, as well as an on going six per cent charge
every decade.
EXISTING TRUSTS
Existing A&M trusts can keep control
of their assets until children are 25 and they will be subject
to a tax charge only from the child’s 18th birthday.
If you want to keep control of the assets for longer the
6 percent charge will apply every ten years. For existing
trust owners the government has given holders until April
6 2009 to decide whether to change their trust.
Existing interest in possession trusts can
continue under the old rules, so there are no tax charges.
However tax charges will apply if you wish to change the
beneficiary.
Discretionary will trusts, used by husband
and wives to make use of both their IHT free allowance are
not affected.
LIFE INSURANCE POLICIES
Parents routinely write life insurance policies
into trusts so that the payout is not subject to IHT when
they die. These have not been affected for existing policies
but there are still question marks over new policies. You
can however avoid the problem if the policy is written into
a bare trust, the most simple form of trust where children
inherit at 18.
TOP TIPS ON HOW TO
MINIMISE YOUR TAX
- Make sure gifts are below £285,000
- Use a discounted gift trust
- Make a gift into a trust out of income
- Put your family assets into a company
- Put more money into your business
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