We reported recently that the Inland Revenue had closed a loophole in the law that helped people legitimately avoid inheritance tax. The loophole worked by allowing a married couple to gift money to their children through a trust. This way, although the money would have been given away, the person making the gift could potentially still enjoy the benefits. This is known in technical terms as a gift with reservation.
As of 20 June this year the loophole was officially closed with the Paymaster General declaring any trusts utilising the loophole will now become subject to tax.
Our View
If you have made use of this loophole it would appear that as long as it was done before 20 June, all is well. However, any use following that date will render a person subject to tax. There is a chance that all such trusts, whenever they were made will no longer be effective for inheritance tax. This will mean that the legislation will be retrospective. This is because although the Court of Appeal denied the Inland Revenue the right to appeal to the House of Lords (regarding the case that brought this loophole to the forefront) they have done so anyway.
If the House of Lords side with the Inland Revenue, people that have already used this loophole could be caught. The result of closing this loophole is yet more tax for the Government, most probably through increased inheritance tax revenue. According to the Inland Revenue, around £2.4bn is expected to be received from inheritance tax alone during this tax year. The sad thing is that much of this tax could be saved with the proper planning. Wouldn't you rather your estate went to your family and not the Inland Revenue?
Inheritance tax is a highly complex area and you should take advice when legitimately trying to reduce or eliminate any potential bill.
Learn more about Inheritance Tax in the Inheritance Adviser.com.
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