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Tax and National Insurance
News Release from: Standard Life Bank | Subject: Inheritance tax
Edited by the Insidemoneytalk Editorial
Team on 14 March 2008
A mixed Budget for estate planning, says
Standard Life
In Alastair Darling's first Budget as Chancellor, there was a mixed reprieve for those working in the field of estate planning.
The 2 year transition period for changes to Interest In Possession trusts, due to expire on 5 April 2008, has been extended to 5 October 2008 This will give trustees and their advisers an 6 extra months to consider the IHT impact of Budget 2006
This article was originally published on Insidemoneytalk on 16 Jul 2007 at 8.00am (UK)
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Budget Note 46 refers to Finance Act 2006 being 'unclear' however and states that new measures will be introduced in the forthcoming Finance Bill to clarify the type of beneficiary changes which will qualify for special treatment under the transition rules.
Commenting on the new proposals, Julie Hutchison, Estate Planning Specialist with UK Financial Services, Standard Life said, "My impression is that, to date, many trustees have been taking a 'wait and see' approach, to leave decision-making to the end of the transition period so as to allow changing family circumstances to be taken into account.
This area is rather technical and trustees should take legal advice before acting.
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There are both great opportunities and pitfalls here." In other estate planning areas much of the detail had been pre-announced in the Pre-Budget Report (PBR) of October 2007, which set the scene for the new transfer rules for the nil rate band for inheritance tax (IHT).
Similarly, the new rules affecting non-domiciled persons and changes to CGT had been trailed in the PBR and the new IHT100 regulations were published just last week.
News of a relaxation to the new residence test was similarly trailed prior to the Budget.
There was however a 13 page supplementary document containing detailed changes to the taxation of non resident trusts.
Commenting, Julie said "We will need to wait for the publication of the Finance Bill in a couple of weeks to see the final form of the legislation covering the IHT nil rate band rules, which were published in draft in October 2007.
Whilst I am not expecting any surprises, it will be reassuring to see them in print so practitioners who have been working with the draft rules know there is no change to these." Under the old rules, chargeable transfers of over £10,000 had to be reported to HM Revenue and Customs (HMRC) on forms IHT100 and IHT100a, together adding up to 12 pages of compliance even if no tax was due.
In the aftermath of Budget 2006, more types of lifetime gift qualified as a chargeable transfer instead of a PET (potentially exempt transfer) which meant both HMRC and those making gifts faced additional administrative burdens even when no IHT was due.
Julie continued, "I am delighted that prior to the Budget, HM Revenue and Customs (HMRC) published the new IHT regulations which will greatly simplify the compliance and reporting involved for many lifetime gifts.
The new rules were issued on 6 March 2008 and will come into force on 6 April 2008, with an effective start date of 6 April 2007.
For once retrospectivity is a good thing.
The new rules mean people who have made gifts since 6 April 2007 will be able to take advantage of these new limits.
These long-awaited regulations are the product of two rounds of consultation and are better as a result of that process.
They are simpler and more consumer-friendly than the first draft from summer 2007." Note: References to legislation and taxation are based on Standard Life's understanding of law and HM Revenue and Customs practice at the date of publication and the information contained in Budget 2008.
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