The Chancellor's Autumn Statement: U-Turn on Settlement Nil Rate Band
Following yesterday’s Autumn Statement, the government has dropped plans to introduce a single settlement nil rate band to be shared between all trusts set up by a settlor in lifetime or on death.
Under current rules, an individual can establish several trusts and as long as they are set up on different days each will have its own £325,000 nil rate band. Furthermore, if for example an individual placed a gift equivalent to the nil rate band (currently £325,000) into a trust and survived this by seven years, it would fall outside of their estate for tax purposes. Then that individual could repeat the process, once again having to survive the gift by seven years.
In previous proposals the government stated that it planned to change the inheritance tax rules so that there would instead be one settlement nil rate band, in an aim to target tax avoidance by people setting up a number of trusts throughout their lifetimes.
The settlement nil rate band proposal was heavily criticised as an overly complex, and unfairly retrospective solution to inheritance tax avoidance. However, it is something of a surprise that the government has decided to make a U-turn with its plans.
The government does however intend to introduce new rules in the future to target tax avoidance through the use of multiple trusts and they also plan to simplify the calculation of trust rules.
We await further details on this turnaround - however if you are unsure how this affects you or your inheritance plans - please feel free to comment below, call me on 01908 660 966 or email me on firstname.lastname@example.org. I would be pleased to help.