The government has shied away from any immediate overhaul of the way trusts are taxed, stating that it will instead review specific areas on a “case-by-case” basis for now. Having consulted on how such vehicles are taxed between 7 November 2018 and 28 February 2019, the government has now published a summary of the responses, adding that these “did not indicate a desire for comprehensive reform of trusts at this stage”. Once viewed as a way to shield wealth from the taxman, nowadays trusts are often used by individuals who wish to pass on assets while retaining a level of control over them. However, trusts do have some advantages relating to inheritance tax (IHT). Some transfers of assets into trusts are subject to an immediate 20% entry charge, but only if the amount transferred across within the last seven years exceeds the individual’s IHT nil rate band of £325,000. Individuals can therefore set up trusts up to this amount, tax-free, every seven years. The government noted that a “significant number” of respondents to the consultation had criticised the immediate entry charge, saying this added complexity, made trust usage less attractive and produced results respondents did not consider “neutral”, in terms of the tax treatment of trusts versus alternative approaches. Some added that the charges were out of step with cases where individuals either held onto the assets or made an outright gift, given that unlimited gifts can be made to other individuals before death without incurring an IHT charge. The “relevant property” regime, where a charge of up to 6% is levied on a trust every 10 years to collect an amount over 30 years that roughly aligns to an IHT bill on an individual’s death, also came up. Respondents warned that some double charges could arise under the regime. They also criticised the 6% rate, arguing it should not be raised, as well as the 30-year period. Some also called for a revised system of charges for trusts that move capital to minors or young adults.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of April 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.