HM Revenue and Customs has confirmed that new proposals for a single nil rate inheritance tax band for trusts will not be applied to existing trust arrangement, a move Skandia, part of Old Mutual Wealth, has described as “pragmatic”, following fears the proposals would be retrospective.

HM Revenue and Customs has confirmed that new proposals for a single nil rate inheritance tax band for trusts will not be applied to existing trust arrangement following fears the proposals would be retrospective, a move Skandia, part of Old Mutual Wealth, has described as “pragmatic”.

In new consultation paper published by HMRC called Inheritance Tax: a fairer way of calculating trust charges, the government expresses its concern over the setting up of multiple trusts on different days, each with its own nil rate band below the £325,000 tax limit.

HMRC was worried this tax planning arrangement was being abused and set about consulting with the industry on how it could close down this practice by introducing a single nil rate band for all trusts created by the same individual.

It was feared the new proposals would be retrospective and HMRC would introduce a single nil rate band across all existing trusts resulting in some existing trusts facing a tax charge for the first time at the 10 year periodic charge point.

Trusts set up prior to 6 June 2014 will remain under the current arrangements, creating a dual inheritance regime for trusts. The proposed changes are effective from 6 April 2015, and will only apply to trusts set up on or after 6 June 2014.

Skandia believes that trusts created before 6 June 2014 are not completely out of reach.  The firm said that if any trust has additional assets added to it or where it becomes a relevant property trust on or after 6 June 2014, the change will bring that part of the settlement into the new regime. 

“HMRC has been pragmatic in its proposals. With the right advice it is possible for existing trusts to remain unaffected preventing thousands of trusts becoming liable to tax, avoiding a headache for both clients and advisers. Trusts will continue to offer advantages in estate planning compared to relying solely on a will to pass assets on. Advisors can add value by ensuring the tax efficient benefits are maintained and the new rules are applied correctly,” said Rachael Griffin, head of technical marketing at Skandia.