New plans to crack down on Inheritance Tax (IHT) unveiled by HM Revenue & Customs (HMRC) in recent days could affect thousands of UK families that have set up trusts in an effort to mitigate their IHT liability, it has emerged.
For decades, trusts have been set up in various forms by hundreds of thousands of families attempting to pass on their wealth to their loved ones.
However, HMRC is worried that these trusts are allowing some families to pay less IHT than those who do not have accountants handy to help them set up these arrangements.
HMRC’s latest crackdown, which has been described as one of the biggest reviews of trusts in several years, will investigate how fair and fiscally neutral trusts are, and whether those who use them have an unfair advantage over others.
Under existing rules, such trusts enable individuals to move wealth out of their estate in such a way that it is protected from the 40 per cent rate of IHT due on estates above £325,000 after the wealth-holder has died.
However, despite wealth being held in trusts usually being free from IHT, trusts are often subject to a number of other tax charges which can often be smaller than the IHT bill would have been had the trust not existed.
If HMRC’s review finds these taxes are indeed smaller than IHT, it could choose to reform these trusts, meaning some families could ultimately pay much more.
The review was originally announced by Philip Hammond in last year’s Budget, but its launch has been delayed by a year.
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