Inheritance tax treatment on bare trusts for minors made clear
The ABI has received written confirmation from HM Revenue & Customs that bare trusts for minors will not be treated as a settlement for inheritance tax (IHT) purposes.
Until a few months ago, the prevailing view had been that a gift to a bare trust for minor beneficiaries was a potentially exempt transfer (PET). The Revenue then indicated that it might adopt the view that such a gift would actually be a chargeable lifetime transfer (CLT).
The implications of a CLT would be an immediate IHT charge of 20% where the value of the gift exceeded the nil rate band (£300,000 for tax year 2007/2008).
This contrasts with a PET where there is no upfront IHT charge regardless of the value gifted. A CLT also involves periodic charges on the 10-yearly anniversaries of the trust and an exit charge when capital is distributed to beneficiaries.
Julie Hutchison, estate planning specialist at Standard Life, said: "Advisers and their clients can now use bare/absolute trusts with confidence where minor beneficiaries are being named, without the previous worry that this would be treated as a CLT.
"We can now return to business as usual with bare/absolute trusts."