The government has finally announced measures to put an end to multiple trusts (otherwise known as pilot trusts or Rysaffe planning) as a way to mitigate liability to Inheritance Tax. Unfortunately, the new rule is retrospective, which means that unless death is anticipated before 6 April 2016, the new rule applies to any Will which used pilot trusts, even if executed before 10 December 2014.
The effect of the change is that additions of property on the same day (e.g. the date of death) to two or more trusts created by the same settlor and after the original settlement date will be treated as related settlements for tax purposes. This is to apply for the purposes of ten-year charges, exit charges and for the charge on 18/25 trusts. The effect of this, according to HM Treasury, will be that taxpayers can no longer avail themselves of multiple nil-rate bands by creating multiple trusts on successive days with the substantial amounts of property being added only on the death of the settlor.
The new rule will apply to all charges arising on, or after, the proposed commencement date of 6 April 2015 in respect of relevant property trusts created on, or after, 10 December 2014. As an anti-forestalling measure, it will also apply to relevant property trusts created before 10 December 2014, where additions are made to more than one trust on the same day.
However, a key point to note is that taxpayers will still be able to settle property up to the value of the nil-rate band into a trust every seven years.
The rule on same-day additions to existing trusts will not apply to a will executed before 10 December 2014, although this exclusion will be limited to deaths before 6 April 2016. This is to allow time for affected individuals to change their will and avoid unwanted tax consequences.
It is therefore vital that anyone who has used pilot trusts as part of their IHT planning should now consult their solicitor or other professional adviser to reconsider their plans.
If you require further information, please speak to Richard Monkcom, Roy Campbell or Helen Freely of Druces LLP’s Private Client team.