CIOT welcomes inheritance tax changes
The Chartered Institute of Taxation (CIOT) welcomes the inheritance tax changes announced in the Budget, which have important implications for individuals and trustees.
There has been some uncertainty about the position where a pre-22 March 2006 life interest comes to an end and is replaced before 5 April 2008 by another life interest in favour of the same life tenant. Draft legislation has now been published to make it clear that, in these circumstances, there is no chargeable transfer and therefore no inheritance tax payable.
Emma Chamberlain, Chairman of the CIOT’s Succession Taxes Sub-Committee, says: “This is a very welcome clarification. The Government has also provided a useful extension to the transitional serial interest period.”
Under Finance Act 2006, where a person had an interest in possession in settled property at 22 March 2006, the interest could be terminated in favour of a continuing interest in possession either for the same or another beneficiary and the old inheritance tax rules would apply.
This “transitional regime” was due to expire on 5 April 2008, following which it would no longer be possible to substitute one interest in possession for another without a chargeable transfer arising, otherwise than on death of one of the spouses. It has been announced that the 5 April 2008 deadline is to be extended to 5 October 2008 in relation to the reorganisation of interest in possession trusts.
This extra time is a useful and very welcome measure which will enable trustees to reorganise sensibly before 5 October 2008 without worrying about the earlier uncertainties.
As expected, the nil rate band is being increased from 6 April 2008 to £312,000, and the previous proposal to allow the unused nil rate band on a person’s death to be transferred to their spouse has been confirmed. Some consequential revisions to capital gains tax have also been made, which will prevent a claim for inheritance tax relief on the second death retrospectively changing the capital gains tax bill on an earlier disposal of an asset.
Emma Chamberlain adds: “The CIOT very much welcomes the extension to the transitional serial interest period, which will give interest in possession trusts proper time to reorganise sensibly now that the legislation has been clarified. The transferable nil rate band is something that CIOT also supports, since it will greatly simplify the affairs of families where the first spouse has died and the family want to use the unused nil rate band without having to resort to complex and expensive options”.
– ENDS –
For press information contact Simon Goldie on 020 7245 4122 (direct line), 07879 497316 (mobile). Email sgoldie@ciot.org.uk
-01.png){kind=spacer}