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Inheritance Tax Changes

Changes to Inheritance Tax rules for multiple trusts

The Spring Budget has made some changes to close the loophole often used by wealthier clients to mitigate Inheritance Tax for future generations.

The loophole worked as follows:

This type of arrangement is known as a “pilot trust”.

The Budget has changed this so each trust set up by the same person, whether during lifetime or on death, has to share one nil rate band. It no longer matters whether the trusts were created on different days.

Anyone who has set up pilot trusts may now want to review their tax planning arrangements. The trusts would still be valid but may no longer offer tax-saving effects.

The government is becoming more strict on avoidance of all taxes in general.

Extra Inheritance Tax relief available for those with houses

The Summer Budget has brought in an additional Inheritance Tax relief called the “main residence nil rate band”.

Currently, each individual has a “nil rate band” of £325,000. If they die with assets below that amount, no tax is payable as the assets are taxed at 0%. If they have assets worth more than £325,000, the value above that amount is taxed at 40%.

It has been possible since 2007 for a surviving spouse to make use of any leftover nil rate band of the first to die which has resulted in some individuals having a double nil rate band of £650,000.

The budget has described a further relief which will be available from April 2017 which allows each individual a further £100,000 to be used against the value of their home (or its sale proceeds) when their children, step children, adopted children, foster children, grandchildren and other direct descendants inherit their estate. This figure is due to increase annually to £175,000 by 2021. This effectively means that some families will have a tax free allowance of £1 million by 2021, being the nil rate band (£325,000) plus the transferable nil rate band (a possible further £325,000) plus the main residence nil rate band (£175,000) plus the transferable main residence nil rate band (£175,000).

There will be restrictions on this allowance for those whose net estates are worth over £2 million.

This will disadvantage individuals who do not have children as the relief is only available when their children inherit.

Please contact a member of our Private Client team

Eastbourne: 01323 727321

Meads: 01323 407577

Hailsham: 01323 841481

Polegate: 01323 487051