Capital taxes
Inheritance tax (IHT) nil rate band
The inheritance tax nil rate band will increase to
£285,000 from 6 April 2006. The nil rate bands have been set for the
following three years, at £300,000 for 2007/08, £312,000 for
2008/09 and £325,000 for 2009/10.
Inheritance tax treatment of trusts
From 22 March 2006, interest in possession (IIP)
trusts and accumulation and maintenance (A&M) trusts will be subject to the
same IHT rules as discretionary trusts, although there will be a few
exceptions. This means:
- Payments into the trust will be chargeable
transfers, with a possible immediate 20% IHT charge;
- A periodic charge will apply every ten years at a
rate of up to 6%; and
- There will be an ‘exit charge’
proportionate to the periodic charge when funds are removed between ten-year
anniversaries.
The current, more favourable IHT treatment will
continue for A&M trusts created before 22 March 2006 which provide for
assets to go to a beneficiary absolutely at age 18 – or where the terms of
trusts are modified to do so before 6 April 2008.
The current IHT rules will also continue for IIP
trusts created before 22 March 2006, until the interest in the trust property
comes to an end. If, at that point, the property remains in trust, this will be
treated as a creation of new settled property. If the termination occurs during
the lifetime of the person beneficially entitled, this will be a chargeable
transfer. If the interest ends on death, the settled property will form part of
the beneficiary’s estate (as now) and the trust property will become
subject to the new regime. There are exceptions for charities. In both cases,
periodic and exit charges will apply.
The new rules will not apply to certain trusts, eg
those created for a disabled person or set up by a parent on death for a minor
child who becomes fully entitled to the trust assets at age 18.
As a consequence of these revisions, transfers into
and out of trusts will potentially be eligible for capital gains tax holdover
relief.
Stamp duty land tax threshold
The threshold for stamp duty land tax (SDLT) on
residential property transactions is increased to £125,000 from 23 March
2006. The rates and other thresholds are unchanged.
SDLT simplification and clarification
Certain forms of consideration will be treated as not
chargeable from 12 April 2006. They include payment by a donee or beneficiary
of capital gains tax or inheritance tax on a gift, as well as payment of a
landlord’s costs on a grant, variation or termination of a lease.
There will no longer be a charge to SDLT on the
transfer of an interest in a trading partnership where the partnership property
includes land, except where the partnership trade consists of developing or
dealing in land. This and several other simplifications will take effect from
the date of Royal Assent.
Alternative finance arrangements
The existing SDLT reliefs for alternative finance
arrangements (eg those used by Muslims) available to individuals, will be
extended to companies, trusts and clubs from the date of Royal Assent. The
reliefs ensure that the SDLT payable is no more than would be due under
standard loan finance arrangements.
SDLT– unit trusts
SDLT relief is withdrawn on the transfer of property
into a newly formed unit trust for the issue of units. The change affects
transfers from 22 March 2006, with transitional provisions to protect contracts
entered into before 2pm on 22 March 2006.
Stamp duty reconstruction relief
Two extensions will be made to the relief from stamp
duty for certain company reconstructions and acquisitions. The acquiring
company will no longer have to be registered in the UK. The strict rules
concerning the proportion of shares held by any shareholder will be relaxed so
that relief will be given provided that, as near as practical, there is no
change in overall ownership of the reconstructed business.
The summary has been prepared very rapidly and
may contain errors for which we cannot be held responsible. The proposals are
in any event subject to amendment before the Finance Act is passed. Advice
should be taken before any action. |
