Another fine mess: imminent changes to the IHT excluded property rules call for urgent action by trustees

Urgent action may be required to prevent disastrous inheritance tax consequences for settlors of excluded property trusts.

The Finance Act 2020 will include some subtle but significant changes to the rules regarding so-called ‘excluded property trusts’ in the inheritance tax legislation.  One of the changes is unabashedly retrospective, and on a literal reading, it goes much further than might be expected. In some scenarios the change could have disastrous consequences for settlors or the trusts they have created, retrospectively changing the treatment of actions that, when they were taken, were tax neutral.

It may be advisable for trustees to take action to exclude settlors of affected trusts, or take other pre-emptive action, prior to the Finance Bill receiving Royal Assent, which could be as early as next week.

Trustees need to carry out an urgent review to identify trusts that have previously received:

1. an addition by way of gift,
2. a loan, even from an unconnected third party such as a bank, or
3. a trust-to-trust appointment,

if that step may have occurred at a time when the settlor had become deemed UK domiciled or indeed actually UK domiciled.

We discuss the proposed changes and potential implications in detail in our article linked below:

https://www.charlesrussellspeechlys.com/en/news-and-insights/insights/private-wealth/2020/another-fine-mess--imminent-changes-to-the-iht-excluded-property-rules/