The number of Inheritance Tax mitigation tools are receding further, following the closure of another loophole.
The Government has acted with immediate effect to close a loophole that allows transfers between spouses to become exempt from Inheritance Tax. Trusts called Spousal Alienation Trusts have been used by a number of insurance companies to make use of the loophole. With these trusts one spouse transfers assets to the other. Then after a minimum of 4 weeks the spouse that received the assets interest is terminated and new beneficiaries for the assets are nominated.
As long as 7 years elapses from the date the new beneficiaries are nominated, the value of the asset falls outside of the couples' estate.
The Inland Revenue rules state that if the original person could benefit from the assets, even though they have been given away, then it is deemed as a gift with reservation and potentially taxable.
However, until now, transfers between spouses were not deemed as gifts with reservation.
Our View
The so-called spousal alienation trust route was a fairly simple way to deprive the Inland Revenue of Inheritance Tax. As house prices rise and people become more wealthy, so the opportunity for collecting tax grows.
The Government has amended the relevant legislation so that it comes into effect immediately. This is just an opportunity to collect greater revenue from people that have worked and saved to provide for their families.
Inheritance Tax is a voluntary tax and there are still many ways to mitigate it. At 40% of the value of your estate after the first £255,000, wouldn't you rather the money went to your family?
Learn more about Inheritance Tax in our site totally dedicated to the subject, Inheritance Adviser.com.
Download our free fact sheets on Inheritance Tax and Will Trusts (registered users only).
Need some help or advice? Visit the Help Zone to find out about all the different ways we can offer advice and guidance to you.
Prefer discount guidance? Try our Ask An Adviser service.