"The chancellor could have been more generous given the relatively small amounts raised by this tax, and perhaps there is scope for increasing the nil rate band more quickly in future."
Commenting on the introduction of new and wide reaching rules in relation to the inheritance tax treatment of trusts, Patricia Mock, director in Private Client Services at Deloitte, said:
"Historically, transfers into interest in possession trusts and accumulation trusts have been potentially exempt for inheritance tax and are exempt if the donor survives for seven years after the gift.
"It appears that this favourable treatment will broadly only apply to trusts created upon death by a parent for a minor child who will become fully entitled to the assets at age 18, or to trusts for the disabled. This will have a fundamental effect on the tax position for accumulation and maintenance trusts, which have been widely used as an effective vehicle to support and accumulate income for minors, subject to their receiving at least a life interest in the trust by age 25.
"Going forward, such trusts will now be treated in the same way as discretionary trusts, meaning an inheritance tax charge of up to 6% every ten years, together with further sums payable when distributions are made. There is a window for existing accumulation and maintenance trusts to restructure prior to 6 April 2008, so as not to be subject to this charge. However, they will need to ensure that the beneficiary will receive the trust assets absolutely at age 18, which is unlikely to be in the beneficiary's best interest, nor reflect the wishes of the settlor at the time the trust was made."
Commenting on the announcement of legislation to confirm existing concessionary practice on the treatment of capital sums in pension schemes on death, applying up to the age of 75, Stuart Davies, wealth advisory director at Deloitte, said:
"This confirms our present understanding of the position that capital paid out from pension schemes on death before age 75 (and before benefits are drawn) will not be subject to inheritance tax (IHT).
"However, the Government is concerned at the potential for using Alternatively Secured Pensions, available from age 75, to enable individuals to pass on capital to their beneficiaries rather than to provide a pension. Legislation will be introduced so that capital paid to beneficiaries other than a spouse, civil partner or financial dependant (or to a charity) will form part of the deceased's estate for IHT purposes.
"Furthermore, any 'left-over funds' in the hands of the surviving spouse, civil partner or financial dependant on their own death, will form part of their estate for IHT."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.