Autumn Budget 2017 – What Does It Mean For Inheritance Tax And Trusts?

While there were no surprise announcements in relation to any inheritance tax changes, the Budget figures show revenue from inheritance tax has hit £5.1 billion (calculated May 2016 – May 2017).

This alone shows that as the nil rate band has not increased since 2009/10 more estates are being brought into the inheritance tax net and as a result there is likely to be more of a need to carry out some planning in this area. Clients should be reminded to make use of the various exemptions which are available to them as well as being reminded of the various other options that are available to help mitigate inheritance tax. There are numerous strategies available to fit the clients’ overall circumstances and objectives. For example, in cases where clients may not wish to make gifts, they could consider alternative options, like loan trusts, which effectively ‘freeze’ the liability, or discounted gifts trusts. Investing in assets which qualify for business relief (business property relief) after a two year period could also be considered depending on the clients’ attitude to risk. And, in cases where an inheritance may have been received, consideration should be given to executing a deed of variation as this provides an immediate inheritance tax saving.

The government also published some research it had commissioned to understand the motivations, behaviours, attitudes and underlying decisions made by individuals on inheritance tax matters and the use of reliefs and exemptions in that process.

Specifically, the objectives were:

1. To understand the decisions made by testators with agricultural or business assets when planning what to do with their estate
2. The influence of IHT reliefs on these decisions
3. What beneficiaries do, or intend to do with inherited assets.

A total of 80 interviews were conducted among testators and beneficiaries who owned business assets and agents (for example, solicitors, accountants and tax advisers) who advise on business relief and agricultural property relief.

The qualitative nature of the research means that findings in this report are not statistically representative of the wider population. Nevertheless, it was interesting to see that many individuals said they only knew a little about inheritance tax so were aware of the basic principles but very few were aware of business relief or agricultural property relief.

It will be interesting to see what the government intends to do, if anything, with the findings of this research.

Finally, the government also announced that a consultation would be published in 2018 on how to make the taxation of trusts, simpler, fairer and more transparent. However, we know that this isn’t the first time that the government has looked to simplify the inheritance tax treatment of trusts as, dating back to 2013, an initial consultation was launched followed by two more consultations in 2014 and 2015 respectively. Various proposals were considered, however, it soon became evident that simplification would come at a cost. It will be nonetheless interesting to see what the 2018 consultation has to offer.