CIoT Submits Representation On Trust Tax Changes

by Jason Gorringe, Tax-News.com, London

16 May 2006

In its recently published submission to the UK government on the 2006-07 Finance Bill, the Chartered Institute of Taxation (CIoT) has once again slammed changes to the tax regime for trusts.

In his budget speech, Chancellor Gordon Brown announced that the inheritance tax exemptions which previously applied to some types of trust will only be available in certain prescribed circumstances.

"Where this is not the case, inheritance tax charges will apply in the same way as for all other trusts, preventing these trusts from being used to shelter wealth from inheritance tax. The new rules will take effect from today but there will be transitional arrangements for existing trusts," he revealed.

The CIoT submission began by observing that:

"Once again we have a mammoth Finance Bill which we believe would create more effective law to the benefit of HM Government and taxpayers had it benefited from proper consultation, resisting the temptation to tinker, and a recognition of the need for law to be clear, comprehensible and have a degree of stability, and be consistent with wider obligations such as EU law."

With regard to trusts, the CIoT announced that:

"This year, we have nearly 40 pages of legislation on trusts...that change the tax system radically. The IHT provisions have not been the subject of consultation, and will harm beneficiaries of innocent trusts and penalise taxpayers for setting up bona fide family arrangements.

"If the Government is concerned about the abuse of trusts for tax avoidance purposes, it should tackle the abuse and not introduce wideranging provisions that will catch the innocent as well as the guilty. To assume, as the Government evidently does, that all trusts are set up for avoidance purposes is grotesque."

The Institute went on to suggest that the government seems "unable to understand" that many people making their wills fear that their beneficiaries may not be mature enough at the age of 18 to handle substantial sums of money responsibly, adding that:

"We also restate that, contrary to the inferences made, this Institute has never supported reducing the age qualification in the trusts rules from 25 years to 18 years."

"To remove the surviving spouse exemption where the surviving spouse has a life interest is also unwarranted. Very often the spouse is the second spouse of the deceased, and the trust assets are to go eventually to the children of the first marriage. This has nothing to do with avoidance, but is a bona fide family arrangement."

The submission went on to conclude, with regard to the issue of trusts, that:

"We are also concerned that the changes to the rules for professional trustees could drive business out of the UK, as it appears to discriminate against UK trustees of non-UK trusts."

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