STEP, ICAEW and CIOT Join Forces To Call For Delay In Trust Tax Changes

by Robin Pilgrim, LawAndTax-News, London

07 April 2006

An alliance of professional bodies, including the Society of Trust and Estate Practitioners (STEP), Chartered Institute of Taxation (CIOT), the Law Society of England & Wales, the Law Society of Scotland, the Low Incomes Tax Reform Group, the Institute of Chartered Accountants in England & Wales (ICAEW), the Institute of Chartered Accountants of Scotland, the Association of Chartered Certified Accountants (ACCA), and the Association of Private Client Investment Managers (APCIMS) this week issued a statement calling for Budget changes to the taxation of trusts to be postponed until proper consultation has taken place.

In his recent Budget speech, Chancellor Gordon Brown announced that the inheritance tax exemptions which presently apply 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 announced last month.

The alliance of lawyers, accountants and other professionals highlighted that millions of people will face problems because legislation is being rushed through without proper consideration of the effects.

The group argues that the government's proposals may cause hardship by bringing in new tax charges for spouses where assets are left in almost any sort of trust arrangement, including trusts created automatically when people die without leaving a will. They will create an unfair anomaly between wills that use trusts and those that don't. They will put assets in the hands of people too young or too vulnerable to manage them sensibly. And they could affect life insurance policies.

John Riches, Chair of the Technical Committee of STEP (the Society of Trust and Estate Practitioners) commented that:

"We are waiting to see the fine print of the Finance Bill on Friday. We are very concerned that these changes don't just affect people who make wills. If you die without making a will and you have children, the statutory rules on intestacy can mean that a trust is automatically set up for your family. This means if someone dies leaving a house in their own name worth £500,000, their family may now have an extra tax bill of £36,000 compared with nil before Budget day."

Emma Chamberlain of the Chartered Institute of Taxation (CIOT) added: "It is perfectly right and proper that the government acts to stop unacceptable tax avoidance through use of trusts. However all the professional bodies hope that HMRC and the government will listen to our representations and modify the proposals to ensure that spouses and civil partners remain exempt and that young and vulnerable people can continue to be protected through trusts without suffering a financial penalty."

However, speaking to the Guardian on Wednesday, a Treasury spokesman hit back, explaining that:

"Only a very small minority of very wealthy individuals can possibly be affected. This can only affect a very small number of very wealthy people. And these have two years before the changes come into force, during which they can change their affairs if they wish."

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