The UK government has come under pressure to drop changes announced in the recent Budget to the taxation of trusts, after a group representing lawyers and insurers estimated that a million people could be affect by the plans.
An alliance of professional bodies including the Law Societies and Society of Trust and Estate Practitioners (STEP) said that the proposals would increase inheritance tax for many families, including those who do not leave a will. John Riches, from STEP, said: If you die without making a will and you have children, the statutory rules on intestacy can mean that a trust is automatically set up for your family.
This means if someone dies leaving a house in their own name worth GBP500,000, their family may now have an extra tax bill of GBP36,000 compared with nil before Budget day.
Under the proposed legislation, trusts set up for young people that arrange to pay out when the child reaches the age of 21 or 25 will need to pay out at 18 to avoid extra tax charges. The charges will be levied once every ten years, and again when they pay out. Trusts will also be subject to a 20% tax charge when they are set up, levied on their value above the inheritance tax threshold.
STEP believes that there are at least a million wills that will need to be changed to conform to the new rules. Insurer Skandia has estimated that there are 4.5 million insurance policies that will also need to be altered. The Treasury announced that people who die intestate will not be affected after the protests, but have not backed down over the rest of the scheme.