The following Private Client guidance note provides comprehensive and up to date legal information covering:
22 March 2006 was the day of the 2006 Budget which, without any warning or consultation, made sweeping changes to the inheritance tax (IHT) treatment of trusts. The date represents a watershed in the IHT treatment of trusts since many of the key changes took immediate effect. The first step in working out the correct IHT treatment of a trust is to look at whether it was made before or after 22 March 2006.
Before 22 March 2006, there were three main types of trust for IHT purposes:
relevant property trusts (usually discretionary trusts)
interest in possession (IIP) trusts; and
accumulation and maintenance (A&M) trusts
On that date, the relevant property regime (RPR) was extended to nearly all new lifetime trusts, whether in discretionary, IIP or A&M format. Similarly, additions of property to all existing trusts (with the exception of disabled trusts, bare trusts and some premiums paid in respect of life policy trusts) would also be within the RPR. Transitional rules were given to existing IIP and A&M trusts, but with a view to bringing those trusts within the RPR in the longer term. The aim was to try to make trusts less attractive for IHT purposes, though many other benefits to using trusts remain.
The main disadvantage of making a relevant property trust is that the settlor incurs an immediate IHT charge
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