Preston Lind

Then, following the publication of the draft Finance Bill, the estimates fell to at least one million...

In his spring Budget the Chancellor Gordon Brown announced moving steps to handle the usage of Trusts being used to avoid Inheritance Tax. The immediate effect amongst the legal and financial fraternity amounted to panic and confusion. With-in ten days of the budget speech the rates of the variety of people that may be hit by the newest anti-trust provisions hit 4.5 million.

Then, after the publication of the draft Finance Bill, the rates fell to 1 million people. Therefore, with specific mention of life insurance policies written in trust, whats happening?

Well firstly before we go further, we've to help make the point that this article is commentating on the positioning based on the initial draft of the Finance Bill and itll be July 2006 early before that bill becomes law. The legislation still needs to move across parliament and its likely the situation can change yet again, when i write. If it does I'll keep you informed.

Within weeks of the budget speech, the Government retreated from its previously held position that all life policies written in confidence are caught by the new legislation. The current situation is that when your life insurance policy was created in trust before budget day 2006, then a profit the trust remains no cost of tax and fees. The regulation is not now to be retrospective. Thats one headache dispensed with.

However, if your plan was created in-trust following the Spring Budget Day in 2006, then your new tax rules do apply.

For most people, the purpose of writing a life-insurance policy in trust is to make sure that the policy pays out easily and directly to where you need the money to go often to a mortgage provider to repay the mortgage or to recipients in the family to permit them to spend right away because they like and tax free. These trusts that break upon death, aren't now affected by the new rules. Thats because only trusts that carry on to carry money after the policyholders death are focused by the new principles.

New life insurance policies written in trust may now be found with a tax demand when the policys payout makes the deceaseds estate surpass the Inheritance Tax Threshold (IHT) of 285,000 and the plan is written in a kind of trust called an interest-in-possession trust.

Interest-in-possession trusts have now been used to ca