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December 13, 2013
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Trusts Tax Update

The Autumn Statement 2013 contains a number of provisions affecting the tax treatment of trusts:

1. The due dates for the payment of tax and filing of returns are to be aligned in relation to inheritance tax charges on trusts (i.e. 10 yearly periodic charges and exit charges).

The proposed new rule is that a return must be submitted and tax paid by 6 months after the end of the month in which the chargeable event took place.

2. For inheritance tax purposes only, income which has not been distributed for 5 years will be added to the capital of the trust in calculating the amount of the 10 yearly periodic charge and exit charge.

Many trustees accumulate income with the intention of making distributions at a later date.

Therefore trustees of 'relevant property trusts' (i.e. trusts subject to inheritance tax charges) should consider the impact of this proposed change on the inheritance tax liability of the trust, and whether a distribution of income before the end of the 5 year period may be appropriate.

3. HMRC have postponed the proposal to split the inheritance tax nil rate band across all trusts set up by the same settlor.

If introduced this change would affect pilot trust planning, where multiple trusts are set up on different days in order that each trust may benefit from its own nil rate band.

A further consultation will be held with the new rules expected to be included in the Budget 2015.

4. Trusts for vulnerable persons (including bereaved minors and those with physical or mental disabilities) currently receive beneficial tax treatment for income tax, capital gains tax and inheritance tax purposes.

New rules are to be introduced to extend the definition of qualifying beneficiaries and also to extend the uplift in value for capital gains tax on the death of the qualifying beneficiary to circumstances where the beneficiary does not have an entitlement to the income of the trust.

News & Views from PD Tax - December 2013

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