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Trust funds subject to LTA & IHT

tax LIABILITYBy applying the current lifetime allowance (LTA) of £325,000 (£650,000 for couples) to assets transferred into trust funds, HMRC have effectively devised a new regulation that provides the government with higher inheritance tax (IHT) revenue. The LTA was originally applied to assets every seven years, before the financial buffer would start afresh but now, retiree’s undertaking estate planning steps should consider how IHT could impact their final balance.

Claims that the new ruling will merely alleviate the admin concerns of tax professionals dealing with (taxable) payments to estates and (tax-free) donations made to individuals have widely been lambasted. Introduced by HMRC to help relieve growing confusion over taxes on June 6 2014, the measures will see monetary gifts of £325,000 being subjected to 40% IHT (36% for charitable donations), meaning that savers and investors in the public sector could surrender up to £130,000.

Although the new legislation has already been introduced, it’s subject to an ongoing review and won’t apply to balances held in established trusts, so some concerned parties can breathe a sigh of relief. But what of those considering their estate planning options as they approach retirement? Whilst the changes, which are expected to go largely unnoticed for some years, predominantly affect more affluent savers, the average person’s tax planning should still account for their impact on savings.

Because of the inherent IHT implications, making a will as part of any estate planning has always been slightly less advantageous than using trusts and foundations, until now. Yes, complexities affecting the future taxation of trusts have now been simplified and existing trusts are protected against any retrospective liability, but after a decade or so of going unaddressed, those IHT advantages have now diminished. But there are still some options open to prospective investors.

Different types of discretionary trusts and foundations include the standard, gift, loan and wealth protecting options, with each boasting individual benefits that can minimise IHT liability. So, whether it’s greater flexibility, more control over your account, free access to capital or simple asset protection you’re looking for, solutions do exist. Anyone seriously considering their investment options should speak to an experienced financial advisor who’s both reputable and reliable.

By David Robinson
Expats Village

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