Reforms To The IHT Regime For Trusts

On 31 May 2013, H.M. Revenue and Customs ("HMRC") published a further consultation on the IHT regime for trusts. This includes a number of proposals intended to simplify the regime, but a by-product of some of the proposals is that the scope of tax planning available using trusts will be significantly reduced.

The IHT regime for trusts is known as the Relevant Property Regime. It affects the majority of trusts although certain categories of "life interest" trust and trusts for vulnerable persons are not caught by the rules.

The regime involves a charge to IHT at every ten year anniversary of the trust and when property leaves the trust. The maximum rate of IHT is 6% of the property subject to the charge. The regime has long been criticised because the calculation required to work out the applicable rate of tax is complex and onerous. Quite often, the professional costs involved for preparing the calculation outweigh the tax due.