Finance Bill: 'millions of trusts may be caught' by changes

Consumers are wrong to believe that existing life policy trusts are excluded from the changes to inheritance tax (IHT) contained in the Finance Bill, the Law Society warned last week.


At a first meeting with the government since the Bill was published, members of the Society's tax law and wills and equity committees received confirmation that - contrary to reports of a concession - existing life policy trusts are not excluded from the new regime.


As part of the campaign against the changes, the solicitors highlighted to Treasury officials the implications. Law Society President Kevin Martin said 'millions of wills and existing life policy trusts may be caught'.


The Society said the clarification means the payment of ongoing premiums for life policies owned by trusts will not constitute 'additions' to those trusts, so as to bring them within the IHT regime.


Also, any existing life policy trusts that are interest in possession (or life interest) trusts will continue to have their existing IHT treatment accorded to them until the interest of the life tenant comes to an end. But they will still need to be reviewed to take account of the new regime that may apply when the life interest finishes.


Finally, existing accumulation and maintenance trusts holding life policies are affected and will be within the regime. They will need to be reviewed before the expiry of the two-year transition period.


The Law Society will now submit detailed objections to the new regime as well as comments on the draft legislation.