Warwickshire-based chartered accountants & business advisers, Burgis & Bullock are advising individuals to be prepared when new inheritance tax legislation comes into force.

The changes to be introduced into the Finance Bill 2006 were announced by the Chancellor prior to the Budget 2006. These changes included: common meanings of ‘settled property’ and ‘settlor’ for both income tax and capital gains tax; an increase in the standard rate band of the tax for trusts to increase from £500 to £1,000; parental Accumulation and Maintenance Trusts (A&M) gains to be assessed on the settlor not the trustees and residence of trustees.

However, an unexpected change was the significant realigning of trust tax legislation, so that most trusts would be taxed on the same basis as Discretionary Trusts.

The proposed new rules will apply to all new trusts created from 22 March 2006 and existing trusts from 6 April 2008. Exceptions include A&M trusts where the beneficiary was absolutely entitled at age 18, and single life interest trusts.

Commenting on the changes, John Hulse, a tax partner at B&B says: “Due to constant lobbying, the Government has now reconsidered some of their proposals. As a result A&M trusts will only be liable for IHT at a maximum rate of 4.2% providing the relevant beneficiary obtains a vested interest at 25. Also the widow’s life interest settlement will no longer be liable as proposed.

“Although there has been a climb-down by the Government, we would recommend a review of existing wills once the Finance Bill has been passed. Trusts are still beneficial and can be used as part of an overall plan to reduce taxes and savings for families.”

For further information, please contact John Hulse at Burgis & Bullock on Tel: 01926 451000 or email him at john.hulse@burgis-bullock.co.uk.