Inland Revenue Performs U-Turn Over Gift And Loan Trust Taxation

by Robert Lee, Tax-News.com, London

22 September 2004

The UK’s Inland Revenue has back-tracked on its decision to levy income tax on gift and loan trusts, a tool used by many to shelter assets from inheritance tax.

In his most recent budget, Chancellor Gordon Brown announced that he would be bringing in laws to prevent people from continuing to benefit from assets that had been given away for tax purposes.

Since Brown’s announcement, the Inland Revenue has changed its mind at regular intervals about whether or not to include gift and loan trusts within the new ‘pre-owned assets’ regime.

During the summer, the Revenue wrote to the Association of British Insurers informing it of plans to levy income tax from next April against growth accruing in any trust set up since March 1986.

However, after receiving strong representations from the insurance industry, the tax authority has seemingly decided not to subject the trusts to the new tax regime after all.

Welcoming the move, Peter Vipond, Head of Financial Regulation and Taxation at the ABI, commented:

“This is good news for the holders of loan trusts. We have been working hard on behalf of policyholders to ensure that current arrangements continue, and they can undertake prudent financial planning with some degree of certainty.”

Gift and loan trusts are insurance vehicles which ensure that any returns generated by the capital (which is not itself tax free) can be inherited free of IHT. The person who provides the capital can meanwhile draw it out again in the form of regular instalments over a 20 year period.

Recommended