Farmers should review their inheritance tax planning as soon as possible now that Gordon Brown has finally revealed the extent of his clampdown on trusts, says accountant Mike Harrison.
The controversial reforms first set alarm bells ringing when they were mooted in the Chancellor’s March budget.
But the full details were only confirmed in the Finance Act released at the end of July, says Mr Harrison, a partner at Saffery Champness.
“Families with existing ‘interest in possession’ and ‘accumulation and maintenance’ trusts, two common trust structures, will be affected by the new regime and will need advice on when and how their trusts might be affected by the new rules,” he said.
Previously, parents or grandparents could use trusts to pass on assets to future generations without spendthrift offspring frittering them away before they were 25.
But now, any assets put into trust above the £285,000 inheritance tax threshold will be subject to an initial 20% charge and a 6% hit every 10 years.
“Some existing trusts may be able to make changes prior to 5 April 2008, enabling them to stay outside the new regime and avoid the sort of charges that have applied only to ‘discretionary’ trusts in the past,” said Mr Harrison.
“Individuals with wills containing trust provisions will also need to seek advice from a professional adviser familiar with the new rules in order to ensure that their will is still tax-efficient and achieves the aims originally intended.
Revisions may well be required,” he added.
However, Mr Harrison said farmers could still benefit from using trusts, especially as most agricultural property was still exempt from any tax charge, although it was becoming increasingly difficult to get 100% relief on farmhouses.
“It is our initial experience that trusts continue to be an effective vehicle for many clients, and with thorough planning, the new tax liabilities can be minimised.
“For those seeking alternative options, these are also available. Much of the scaremongering in the press of late is unfounded.
With the right advice, tax-efficient ways to hand on wealth still exist.”