Government does u-turn on trust tax
The Budget wouldn’t be the Budget without at least one u-turn by the government, and this year’s was no exception.
Alistair Darling’s first Budget reveals that the expiry date for interest in possession trusts has been extended from 5 April to 5 October 2008.
Back in March 2006 the government unveiled significant changes to the way some trusts, including interest in possession, are taxed. Trustees of interest in possession trusts, which provide an income for life to a beneficiary, were given until 5 April to name the ultimate beneficiary or face periodical charges as well as exit charges for inheritance tax.
However, the Budget has granted trustees an additional two months to name the beneficiary or face the burden of inheritance tax.
Julie Hutchison, estate planning specialist at Standard Life, said: “My impression is that, to date, many trustees have been taking a ‘wait and see’ approach, to leave decision-making to the end of the transition period so as to allow changing family circumstances to be taken into account.
“This area is rather technical and trustees should take legal advice before acting. There are both great opportunities and pitfalls here.”
That's not all! For the rest of our Budget 2008 coverage, click here
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.