Are Family Trusts Becoming More Trustworthy?
When thinking about estate planning and what’s going to be left to your children, inheritance tax planning needs to be done carefully so that it complies with the law.
Currently under the inheritance tax rules, an individual can pass on the first £325,000 or a married couple can pool their entitlement, bringing the total to £650,000, totally tax free. Any amount over and above this is subject to pay 40% tax. However there are plans you can put in place to limit or eliminate your inheritance tax bill.
Last year, HMRC stated their intention to close a loophole that was used by some to escape inheritance tax altogether. The Loophole exploited the fact that you could create a trust or multiple trusts and benefit from the tax free allowance in each trust. Now because family trusts are also used to give legal responsibility for money or assets to one person, but ownership to another, it can also provide inheritance tax relief.
One example would be a trust fund set-up for a vulnerable person or child, entitles the person to money or property but allows someone else to determine how it is used. In these circumstances, children under the age of consent who have lost a parent or someone with a disability, attract inheritance tax relief.
Of course playing with the tax rules in this way can be risky and may put you on the wrong side of the law, so this is not something we would advise. Those who seek tax avoidance may find themselves or their loved ones having to pay back the money they tried to avoid under the GAAR (General Anti-Abuse Rule). You will probably remember a lot of high profile and wealthy individuals who have been in the news these past few years for their ‘creative’ ways to try to limit their tax bills. They have been named and shamed and ordered to payback everything they owe.
For those with assets over £325,000, it is becoming increasingly important to seek proper legal advice and guidance on estate planning. This will help you to minimise inheritance tax within the general constraints of the law.
For further help or advice on Estate Planning and Trusts please contact our Private Client Department at Forrester Sylvester Mackett in any of our 5 offices.