The Budget - Trusts and Inheritance Tax: Major Changes

Included in the Budget detail yesterday was a major change to the inheritance tax treatment of Trusts. This will apply not only to any new trust created on or after Budget Day but also existing trusts. The detail presently available is limited and we will follow up this Budget Alert once the draft Finance Bill is published.

With effect from yesterday (22^nd March 2006):

• You should not set up a new Accumulation and Maintenance Settlement (A&M) or Interest in Possession Settlement (IIP). A transfer into these types of trust will now potentially trigger an immediate inheritance tax charge. This will be charged at the lifetime rate of 20%.

• You should not add any property to an existing A&M or IIP Settlement. Again most transfers into these trusts will trigger an immediate inheritance tax charge. There are certain exemptions, for example where additions are made out of surplus income, but these need to be checked very carefully.