The Government should look at simplifying the taxation of periodic and decennial charges on trusts in the upcoming Autumn Statement, believes Martin Peddie, partner at Menzies LLP:
“The current system of determining the rate of Inheritance Tax that discretionary trusts suffer is overly complicated, and we would like to see it reversed. Trustees need a fixed-rate of tax and straight forward means to determine their IHT liabilities in the context of the periodic and decennial charges that are imposed on trusts.
“Since 2006, when the simpler tax treatment for Accumulation and Maintenance trusts, and Interest in Possession trusts, was aligned with that for Discretionary trusts, the unnecessarily complicated tax calculations have become an unfortunate fact of life for most Trustees. The Office For Tax Simplification was created to improve matters, but the legislation remains, and continues to impose an unnecessary administrative burden on Trustees, often forcing them to seek justifiably expensive professional advice.
“Discretionary trusts can pay a significant amount of Inheritance Tax. Those holding assets with a value of more than the IHT threshold (currently £325,000) pay Inheritance Tax every ten years (known as decennial or anniversary charges). They can also pay Inheritance Tax on any capital settled into the trust (known as lifetime transfers), and when capital is removed by way of a distribution from the trust (exit charges).”