Tax year end planning: Trust and estate planning


Filed Under: Private Client

Planning tips for the tax year end.

Restriction on deductibility of loans for IHT purposes

The Government introduced legislation from 17 July 2013 to restrict the deductibility of debt secured against certain assets for IHT purposes.

The changes mean that any debt used to maintain or enhance excluded property (such as a non-UK domiciled individual’s non-UK assets or assets qualifying for a business exemption) is no longer a tax-allowable deduction for IHT purposes unless the loan is greater than the excluded asset value i.e. only the excess is allowable.

There are further restrictions on when loans can be taken into account and extreme care should be taken when relying on debt to avoid or reduce an IHT charge. Individuals may wish to undertake a review of historical planning, with their Blick Rothenberg advisor, to ensure that arrangements remain appropriate.

Trust changes – nil rate band

It was announced in the 2013 Budget that there would be a consultation on changes to the way trusts are currently taxed. The proposed changes will split the available nil rate band (the zero rate IHT threshold of £325,000) across all trusts created by the same settlor in their lifetime.

This was promoted as a way to reduce administrative costs but could have costly implications for any settlor who has created more than one trust, for example pilot trusts, as the nil rate band would be diluted many times. HMRC have entered into extended consultations on this. We will continue to monitor progress for any news.

Trust changes – accumulating income

Certain trusts, depending on the trust deed and the trustees’ powers, may have the ability to accumulate income without distributing it.

Where this occurs, legislation will be introduced to capitalise income that is undistributed after five years and so will be liable to the usual capital taxes within the trust.