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.
Since then the Government has consulted on the tax treatment of trusts and it was suggested that one "settlement nil rate band" would be split between all trusts which an individual created, with these changes expected to take effect from April 2015. The settlement nil rate band would be separate from the individual's personal nil rate band. It is likely that these changes would have seen increased IHT revenue arising from trusts as many trusts would have lost the benefit of a full nil rate band.
The Government appears to have made a bit of a U-turn on this however, with the Chancellor's Statement confirming that contrary to the proposals which have been previously set out, a single settlement nil rate band will not now be introduced. We await the finer detail of this early next year but this is a welcome announcement for those who have already set up trusts for tax and succession planning and for those who may look to do so in the future. It does seem clear, however, that the Government will look to tackle pilot trust planning to prevent multiple trusts from being established and will introduce legislation in the Finance Bill 2015 to prevent this.
Trusts set up in the right way for the right reasons can still benefit clients greatly, whether it be to protect death in service and pension benefits for your family or to save for your children or grandchildren's future. These proposed changes may actually prove an excellent focus for clients to review their tax planning strategy and the use of trusts to date.