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Tax experts want simpler IHT rules for trusts

2nd Jul 2013
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Tax experts support a plan to simply inheritance tax charges on trust, HMRC says, although some experts have urged the taxman to be cautious when making changes because current legislation "usually provides an answer".

In a summary of responses to an HMRC consultation a common complaint about current inheritance tax (IHT) charges was that obtaining the historical records of trusts quite often presented practical problems. Finding records can often be a hassle because a large number of trusts which previously had no record keeping requirements fell within the relevant property regime after the changes made to the treatment of trusts in Finance Act 2006, HMRC said.

Simplification of the trust charges calculations could include a proposal to divide the IHT NRB band (currently £325,000) by the number of trusts established by the same settlor, HMRC said. Dividing the NRB in this way could replace the burdensome requirement for historical information when calculating the IHT charges.

Some people responding to the consultation wanted rules on property charges on "accumulated" income to be clarified.

"Where income is regularly or formally accumulated there may be little doubt about the correct treatment of the accumulations within the calculation of relevant property charges," HMRC said. "But it can be different where income remains undistributed for long periods and the trustees’ decisions about whether or not it has been accumulated are less clear. In such cases there can be uncertainty about how the calculations should be undertaken, resulting in questions to, or correspondence with, HMRC to establish an acceptable treatment."

HMRC said it agrees that there should be further consultation on developing a standard approach for property charges on accumulated income in an effort to provide "better certainty and consistency to trustees and practitioners".

The consultation suggested other ways to change inheritance tax rules including:

  • Minor modifications to existing provision
  • Reducing burdens where liabilities are smal
  • Improvements to existing guidance and forms

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