STEP Criticizes UK Treasury Over Trusts Changes

by Amanda Banks, Tax-News.com, London

12 April 2006

The Society of Trust and Estate Practitioners says that the Treasury is wrong to change the taxation of trusts, adversely affecting the interests of surviving spouses and children.

Commenting on the Finance Bill published last week, John Riches, Chair of the Technical Committee of STEP said: "Well over a million wills are still going to have to be re-written to ensure that spouses aren't taxed on the death of their partner if they are left assets in trust. Even relatively simple Wills will need to be rewritten where they leave assets to children older than 18.

"Paradoxically, if you die without making a will and have assets over a certain amount, the law of intestacy automatically creates a tax-free trust to protect your partner. However, intestacy trusts rarely meet the objectives of protecting a spouse and children in an appropriate way.

"There are other ways the government could tackle unacceptable tax avoidance without penalising spouses financially. We hope they will take some time for reflection."

Chris Whitehouse, a barrister and STEP member, added: "The government has decided against all professional advice that if parents intend to give their children assets held in trust, they must do so at age 18 rather than 25, or pay a tax penalty. Yet many parents do not want to give their children money until they have completed their studies and are more mature.

"The government is wrong to claim that lowering the bar to 18 is a result of consultation with the professions. In fact, 18 was imposed by the government against the objections of all professional bodies, who said 25 was appropriate."

The government has dismissed as "hot air" STEP's view that over a million people will be affected. John Riches said: "When the Government says only 20,000 trusts are affected by these measures, they appear to be counting only those trusts that submit tax returns but overlooking the million-plus trusts written into wills. They are concentrating on the tip of the iceberg but ignoring the iceberg itself. Consultation might have avoided this confusion."

In a survey on 31 March 2006, more than 450 STEP members, just over 11 per cent of the membership, said the wills of over 830,000 clients would need to be re-written. Given that nearly 90 per cent of STEP members did not reply and that there are solicitors and will writers who are not members of STEP, the actual figure is likely to be far in excess of a million.

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