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Criticism forces Treasury to postpone splitting of IHT nil-rate band.

Article by STEP (Society of Trust and Estate Practitioners)

The 2014 Finance Bill will not include HMRC's plan to split a single inheritance tax (IHT) nil-rate band among all trusts set up by an individual.

The proposal was put out for consultation in June this year, as part of a package of measures described by HMRC as 'simplifying' the periodic IHT charges on relevant property trusts. It would share out a settlor's IHT nil rate band between all trusts he or she set up instead of the current system under which each separate trust is entitled to a full NRB of its own. The rule, which would apply to both new and existing settlements from a given date, was intended to block a well-used tax planning strategy under which a taxpayer can create multiple settlements on different days, each trust claiming the full nil rate band.

However it drew an avalanche of criticism. Several commentators noted that it would not only make the periodic charges more complex, but would also increase them significantly. The Institute of Chartered Accountants for England and Wales described it as 'more of a revenue-raiser than a simplification'.

The chorus of criticism has forced the Treasury to postpone the measure until the 2015 Budget. In the meantime it will conduct a further consultation.

However it is going ahead with some of the less contentious measures put forward in the same consultation. Thus the 2014 Finance Bill will contain legislation to simplify filing and payment dates for IHT relevant property trust charges.

Also, trust income that has accumulated for more than five years will be considered as part of the trust capital for the purposes of calculating ten year anniversary charge. This is a slight dilution of HMRC's original proposal, which set a two-year cut-off date for trust income. Most tax specialists oppose any such cut-off, on the basis that many trusts are set up with the aim of providing help in the long term, and thus they accumulate income for a rainy day.



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