Standard Life responds to Finance Bill
The publication of the Finance Bill on 7 April shed further light on the proposals to alter trust taxation contained in the Budget on 22 March 2006, in particular, the accompanying Guidance Note from HM Revenue & Customs.
More than half of this Guidance Note addressed specific points affecting life company trusts with clear statements such as “The Finance Bill makes absolutely clear that there is no retrospective tax charge. In particular, no one who wrote a life insurance policy into trust before Budget Day will have to pay an inheritance tax charge.”
Julie Hutchison, Estate Planning Specialist at Standard Life said: “We have now analysed the Finance Bill in detail and we are extremely disappointed that the clear statements in the Guidance Note are not carried into effect in the Bill itself. We can identify some clear examples of retrospective effect where pre-Budget interest in possession (IIP) trusts will be caught by the new rules. Examples are detailed below. We will be making further representations via the ABI on this retrospective effect issue.
“The transitional rules are too narrowly drawn and only cover limited events which occur in the next two years. The only way to prevent retrospective effect is for the definition of a “transitional serial interest” to be widened and for the two year limit to be removed. We will then reach the desired end point which is pre-Budget IIP trusts remaining outside the new rules. The extension of the gift with reservation of benefit rules is also unwelcome. Those new rules in particular will further narrow the already limited usefulness of the transitional period.
“On a more positive note, we are now in a position to re-launch our Loan Plan and Gift Plan absolute trusts on Tuesday 18 April since bare trusts are outside the scope of the new rules.”