The Finance Act 2014, Schedule 25 contains four separate provisions relating to inheritance tax on discretionary trusts, effective from 6 April 2014.
The first, paragraph 2 freezes the nil-rate band at its current level until 5 April 2018.
The second, paragraph 3 closes a loophole left by the Finance Act 2013. Schedule 36 of Finance Act 2013 inserted a new section 162A into the Inheritance Tax Act 1984. This applied where a non-UK domiciled person borrowed money against their UK property, thus reducing the value of the property for IHT. They then invested the proceeds into property which was not subject to IHT. Funds placed into foreign currency bank accounts where thus not chargeable to IHT, but were not excluded property; this paragraph excludes them from deduction.
The third change is in paragraph 4, which brings income which has not been distributed, but not accumulated as capital, into charge to IHT on the occasion of the periodic charge.
The final change is to shorten the period within which the trustees of a discretionary trust must deliver their return to 6 months from the occasion of charge. This relates to both the periodic charge and any exit charges when assets leave the trust.
The attack on trusts continues with more proposals to ‘simplify’ them bringing more complexity to their taxation.
Finance Act 2014, Schedule 25 can be accessed via this link.