THE NEW AGE OF TRUSTS FINANCE ACT 2006 IHT, SDLT, etc

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THE NEW AGE OF TRUSTSFINANCE ACT 2006 IHT,
SDLT, etc (?)

• Alan Barr, of Brodies LLP, Solicitors, Edinburgh
  and Legal Practice Unit, The University of
  Edinburgh

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AVOIDING THE ELEPHANT1

• Inheritance tax and elephants
• Inheritance tax rates section 155
• NRB of 285,000 for 2005-06
• 300,000 for 2006-07
• 312,000 for 2007-08
• 325,000 for 2008-09
• 400,000 by 2012-13(?)

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AVOIDING THE ELEPHANT.2

• Section 156
• Purchase of 2nd hand interests in foreign trusts
• One form of deathbed planning closed
• No surprise there..

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AVOIDING THE ELEPHANT .3

• Section 64(5)
• IHT exemption for compensation for holocaust
  victims who have died
• Not for successful claims but IT and CGT
  reliefs
• Remember IHTA s 154 deaths from wounds and
  diseases on active service
• Wounds and disease not the service

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AVOIDING THE ELEPHANT.4

• Section 160 and Schedule 22
• Pensions
• Amendments to IHTA s 12 enacting concessions
• Omissions to take benefits where spouse or
  dependent benefits
• Omission to take benefits continues where heath
  deteriorates
• (Complex and full of double negatives but a
  Good Thing)

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Pensions

• Anti-avoidance and the religiously inclined
• Alternatively secured pensions
• New sections 151A 151C
• Immediate charge as part of estate OR
• (if it goes to dependants) charged after
  cessation of benefits/death of beneficiary
• Amount as if part of original estate liability
  on pension scheme administrator
• More of this elephant to come a Bad Thing

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SKIRTING ROUND THE ELEPHANT..

• Schedule 20, para 33 introducing FA 1986 section
  102ZA
• Lifetime terminations of interests in possession
  are now gifts, so can be GROBs
• Ends part of younger wife planning (but not all)
• Anti-avoidance might have been enough?

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WHY IS THERE AN ELEPHANT?

• Child trust funds?
• A fear of elephants?
• A fear of avoidance elephants?
• Money from elephants?
• In the end there just IS an elephant

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WHATS IN THE ELEPHANT?

• Schedule 20
• Lifetime transfers into trusts immediately
  chargeable above NRB, at 20
• Gambling on 20?
• ALL trusts, discretionary or liferent, including
  for spouse, civil partner, or self
• Minor exceptions
• Closer look at disabled trusts for other than
  the disabled?
• Who is disabled? sections 89 and 89A

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WHATS IN THE ELEPHANT?

• More sums
• The 10 year charge
• 1. Assumed chargeable transfer s 66(4)
• (i) Value chargeable to tax
• (ii) Other property in settlement which is
• not relevant (less likely now)
• (iii)Value in a related settlement (same settlor,
• same day (dont do it but on death?)

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WHATS IN THE ELEPHANT?

• 2. Assumed cumulative total of transferor s
  66(5)
• (i) Chargeable total of actual settlor
• (ii) Amount subject to exit charges
• 3. Calculate the tax, at lifetime current rates.
• 4. Tax/transfer x 100 gives effective rate
• 5. Apply 3/10 of rate to amount chargeable
• Maximum 6

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WHATS IN THE ELEPHANT?

• The exit charge
• Depends on how long since the trust was created,
  or since the last 10 year anniversary
• May be VERY low, especially in first ten years,
  because of settlors total at commencement

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So do we CARE about the elephant?

• How BIG is the elephant?
• The relieved elephant BPR and APR
• How complicated is the elephant eg added
  property, accumulated capital?

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A BREAK FROM THE ELEPHANT

• SDLT
• (Still) beware of the partnership.
• Transfers of interests OK, unless a property
  investment partnership
• Transfers into and out of partnership based on
  market value
• Beware of more distant family and unknown
  movements
• Section 165, inserting FA 2003, para 8 consent
  by beneficiaries to re-allocation of trust
  property is not consideration

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THE ELEPHANT ON DEATH

• The chocolate teapot trust
• Trusts for bereaved minors
• Complicated law to not much advantage

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The Age 18-to-25 Trust

• Can follow from the chocolate teapot
• Good to have there, but dont expect to use it?
• And thus is it worth having in a will?
• Deeds of variation?

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The immediate post-death interest

• Some things dont change

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ELEPHANTS NEVER FORGET

• So remember 1 April 2008 (with time for
  slippage!)
• Sorting out A M Trusts
• Conversion or leave them be?

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Looking at liferents

• Transitional serial interests
• Between anyone before 6 April 2008
• Inter spouse/civil partner on death AFTER 6 April
  2008
• Successive life insurance policy interests

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Capital gains tax

• Holdovers to and from new liferents
• BUT no tax-free uplift on death
• GETTING USED TO THE ELEPHANT
• Dont give up get on with the elephant!
• More complexity but not our fault?

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