Extra time granted to make the most of benefits from trusts
1st May 2008
Families have been granted an extra six months to rearrange their “income in possession trusts” without becoming subject to the new Inheritance Tax (IHT) regime.
The Finance Act of 2006 changed the rules so that trusts will be hit by IHT every ten years. Holders of existing trusts were given until 6th April this year to rearrange their trusts, such as by transferring it to a different family member, while still remaining under the old tax regime.
That transitional period has now been extended until 5th October. This is a welcome benefit to families who may have left it too late to rearrange their trusts and then missed the April deadline.
Some people may find it helpful to replace an older beneficiary with a younger family member enabling them to hold on to the tax advantages for longer.
If an existing trust is coming to an end it is also possible to replace it with a new interest in possession trust for the same beneficiary without coming under the new rules as long as the trust is drawn up before 5th October.
Trusts can seem complicated but they are worth exploring because if properly drawn up they can help to reduce an otherwise heavy tax burden. Families that already have such trusts should consider whether it would be advantageous to rearrange them before the October deadline. If they rearrange them after the deadline then the trust will become subject to the new IHT rules.
Please contact Peter Pownall on 0800 027 7870 if you would like more information.