Product category:
Protection
News Release from: Standard Life Bank | Subject: Insurance
Edited by the Insidemoneytalk Editorial
Team on 26 March 2007
Standard Life: welcome clarification on
bare trusts from HMRC
The Association of British Insurers has now received written confirmation from HM Revenue and Customs that bare trusts for minors will not be treated as a settlement for IHT purposes.
Until a few months ago the prevailing view had long been that a gift to a bare trust for minor beneficiaries was a potentially exempt transfer (PET) HMRC then indicated that it was minded to adopt a different view, that such a gift to a bare trust would be a chargeable lifetime transfer (CLT)
This article was originally published on Insidemoneytalk on 20 Jun 2007 at 8.00am (UK)
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The implications of a CLT would be an immediate IHT charge of 20% where the value of the gift exceeded the nil rate band (?300,000 for tax year 2007/2008).
This contrasts with a PET where there is no upfront IHT charge regardless of the value gifted.
A CLT also involves periodic charges on the ten yearly anniversaries of the trust and an exit charge when capital is distributed to beneficiaries.
Commenting on this development, Julie Hutchison, Estate Planning Specialist at Standard Life said "This is wonderful news and a very welcome clarification from HMRC.
Advisers and their clients can now use bare/absolute trusts with confidence where minor beneficiaries are being named, without the previous worry that this would be treated as a CLT.
We can now return to business as usual with bare/absolute trusts." Earlier this year Standard Life had added warnings to its absolute trust documentation.
The warnings highlighted that HMRC might not treat the gift to the trust as a PET where minor beneficiaries were named.
Julie commented "we will now be revising our literature to remove the warnings which are no longer necessary." Various professional bodies had made representations to HMRC on this technical point, including the ABI, and HMRC undertook to revisit this area and provide further guidance.
Today's developments now draw a line under this issue.
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