Fam­i­lies set to lose death duty break

The Daily Telegraph - Your Money - - YOUR MONEY -

Hun­dreds of thou­sands of peo­ple who es­tab­lished trusts as a way of lim­it­ing in­her­i­tance tax li­a­bil­i­ties will have to hur­riedly re-ar­range their af­fairs – or risk los­ing out on a valu­able new tax perk.

Lawyers warn there is a “tick­ing time bomb” which could see fam­i­lies miss out the new “fam­ily home al­lowance” which could save thou­sands of pounds in death du­ties.

Un­til re­cently well-off fam­i­lies were en­cour­aged by fi­nan­cial ad­vis­ers and solic­i­tors to use “dis­cre­tionary trusts” to pass on prop­erty to their chil­dren.

But from 6 April this year, the new “main res­i­dent nil-rate band” for in­her­i­tance tax – bet­ter known as the fam­ily home al­lowance – takes ef­fect, and trusts are ex­plic­itly ex­cluded.

The aim of the pol­icy, de­scribed in full de­tail on Page 3, is to give an ad­di­tional IHT al­lowance on top of the usual £325,000 per per­son. By the time the changes are fully rolled out in the 2020-2021 tax year, a cou­ple will be able to pass on a prop­erty worth £1m free of tax.

How­ever, Gary Kiely, a wills and trust spe­cial­ist at law firm Blaser Mills, es­ti­mated hun­dreds of thou­sands of peo­ple could miss out on the ex­panded al­lowance un­less they dis­man­tle trust ar­range­ments.

It is dif­fi­cult to know ex­actly how many wills need to be rewrit­ten be­cause there is not a cen­tral registry of trusts and the con­tents of wills are pri­vate. How­ever, around 16 mil­lion adults hold a will and in the past – par­tic­u­larly be­fore 2007, when IHT rules changed – peo­ple es­tab­lish­ing wills with the help of a solic­i­tor or ad­viser are likely to have in­cluded a trust.

He said: “It needs to be stressed to peo­ple that if there’s a dis­cre­tionary trust sit­ting there and the first spouse dies, the chil­dren need to do some­thing.”

The al­lowance is only granted where a prop­erty is in­her­ited by “di­rect de­scen­dants”, in­clud­ing chil­dren, stepchil­dren, adopted and foster chil­dren and grand­chil­dren. Dis­cre­tionary trusts are ex­cluded be­cause here the as­sets are tech­ni­cally owned by the trust, and con­trolled by the trustees, not the ben­e­fi­cia­ries.

The trust it­self does not ex­ist un­til trig­gered by the death of the sec­ond spouse, so there is noth­ing to un­wind – but the order to es­tab­lish a trust must be re­moved.

Ben­e­fi­cia­ries of a will have two years from the death of the sec­ond par­ent to dis­band the trust, us­ing a “deed of vari­a­tion” to en­sure they can make use of the fam­ily home al­lowance. All par­ties have to agree to this – any ben­e­fi­cia­ries as well as the

Your pre­cious fam­ily home

page 3 trustees, of­ten close friends or neigh­bours, cho­sen by the per­son who orig­i­nally wrote the trust into their will.

A “vari­a­tion” takes place as if the de­ceased had made changes to their will them­selves. If two years pass be­fore a vari­a­tion is un­der­taken, the orig­i­nal will is ad­hered to and the al­lowance lost for good.

Mr Kiely warned a vari­a­tion can only be used if none of the ben­e­fi­cia­ries are mi­nors

A decade ago dis­cre­tionary trusts were in­cred­i­bly pop­u­lar be­cause they al­lowed a cou­ple to com­bine both their IHT al­lowances which at the time could not be trans­ferred as they can to­day.

With­out us­ing a trust, the tax-free al­lowance from the first of a cou­ple to die would die with them. On the sec­ond death only a sin­gle al­lowance re­mained.

But in Oc­to­ber 2007 then chancellor Alis­tair Dar­ling an­nounced mar­ried cou­ples and civil part­ners could trans­fer their un­used al­lowance to a sur­viv­ing spouse. The change took im­me­di­ate ef­fect and, for many, ren­dered dis­cre­tionary trusts ir­rel­e­vant.

Yet they re­mained pop­u­lar be­cause they al­low greater con­trol over what hap­pens to as­sets af­ter death, and are par­tic­u­larly use­ful where there are chil­dren from more than one mar­riage.

Many well-off fam­i­lies risk miss­ing out on the new in­her­i­tance tax break which will ap­ply from April, warns Sam Brod­beck

Even younger fe­male em­ploy­ees such as Zoe Gibbs, 28, are re­ceiv­ing lower con­tri­bu­tions to their work pen­sions than their male coun­ter­parts.

While gen­der in­equal­ity in pen­sion and pay is well doc­u­mented among older gen­er­a­tions of work­ers, new re­search now sug­gests the prob­lem is per­sist­ing for the “mil­len­ni­als” – those who are to­day in their 20s and early 30s.

In­surer and pen­sion provider Zurich found women across all age groups re­ceive less in em­ployer pen­sion con­tri­bu­tions than men, set­ting them up for a far poorer

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