Under current rules, different trusts can benefit from the £325,000 IHT nil rate band before a 10-yearly periodic charge of 6% is calculated. Trust planning to save IHT in this way is known as the "Rysaffe" principle which dictates that, where separate trusts are executed on separate dates, they should be treated as unrelated transactions.
While the Statement actually says that “the Government will consult on proposals to split the IHT nil rate band available to trusts with a view to delivering this change alongside simplification of the trust calculations in 2015" this is broadly taken to mean that from April 2015, the use of multiple trust arrangements to save IHT will be shut down as a tax planning loophole. From April 2015, it is expected that Rysaffe trusts will be treated as related transactions and the nil rate band will be applied across all trusts set up by the same individual.
It is still unclear whether these new rules will be retrospective or not, and they could be applied to existing trusts set up in this way. Some commentators believe the new rules would have to apply retrospectively or it would not amount to a simplification which is the reasoning behind the changes according to the government.
Setting up trusts on different days, each below the £325,000 IHT limit has proved an effective wealth planning strategy for clients over the years and with the new piece of legislation looking set to have a significant impact on existing trusts, clients' existing arrangements will need to be reviewed to ensure they are structured in the most tax efficient way possible.
While these changes might appear to increase the tax burden of trusts, the benefits of tax planning using trusts are still relevant and in most cases the reasons for using trusts as part of an overall planning strategy will still apply.
Trusts set up in the right way for the right reasons can still benefit clients greatly and these proposed changes may actually prove an excellent focus for clients to review their tax planning strategy and the use of trusts to date.