• Calculating cost of tax
  • Calculating cost of inheritance tax

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Trusts and Tax

Inheritance Tax – Taxation of Trusts

The Alignment of Inheritance Tax Treatment for Trusts was set out in Budget Note 25 in the 2006 Budget. After some small amendments these major changes (not mentioned in the Chancellors speach on Budget Day) were incorporated in The Finance Act 2006.

The impact of the act is that, save for a small number of exceptions, all trusts will be subject to Inheritance Tax. It is vitally important that you create Trusts within the specific limitations to avoid Tax. If the Will is written with conditions attached to the Trust they become 'Relevant Trusts' and will be subject to 40% tax on all amounts above the Inheritance Tax threshold.

Under current law, the estate left by someone who dies is entitled to an amount known as the IHT nil-rate band which is chargeable to IHT at 0 per cent. Any value above the nil-rate band is charged at 40 per cent. The nil-rate band in 2007/08 was £300,000 and in 2008/09 was £312,000. The nil-rate tax band for 2009/10 was £325,000.00 and it has remained at this threshold todate (2013/14).

Legislation was introduced in Finance Bill 2008 to allow a claim to be made to transfer any unused IHT nil-rate band on a person's death to the estate of their surviving spouse or civil partner who died on or after 9 October 2007. This applies where the IHT nil-rate band of the first deceased spouse or civil partner has not fully been used in calculating the IHT liability of their estate. When the surviving spouse or civil partner dies, the unused amount may be added to their own nil-rate band.

A transfer of unused nil-rate band from a deceased spouse or civil partner (no matter what the date of their death) may be made to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007.

If you would like to instruct us to make your Will or simply just to obtain advice, please contact Ash Sanger or Esther Watton on 0845-2171377, Ash Sanger is a Director and a Solicitor of England and Wales.