Trusts are a peculiarly Anglo-Saxon construct and it might be surprising to know that the concept of trusts as we know them is by no means universal. They have attracted much criticism over the years, not only because of their ability to screen ownership of assets from public view but also because of their use in tax avoidance.
Gradually, the law relating to trusts has tightened up and their use has in many instances become less beneficial.
In the last Budget, the Chancellor of the Exchequer announced that the Government intends to review the taxation of trusts to make it simpler, fairer and more transparent.
Most trusts are established for the purpose of protecting assets – normally to ensure they remain in the family. A recent review by HM Revenue and Customs showed that the principal motive for trust formation is rarely tax avoidance. In that light, the Government’s decision is somewhat surprising. However, the tax yield from Inheritance Tax (IHT) is relatively low, largely due to the very generous IHT reliefs that apply to assets such as business property, agricultural property and the family home, so it seems likely that the review will be seeking to increase the tax take from IHT.
The normal approach when such changes are planned is to conduct a consultation process, and this should shed light on the Government’s intentions.
In the circumstances, if you have significant assets, it seems a good time to carry out a review of your financial provision and family wealth-preservation strategy. We can provide expert guidance on the issues involved.