TRUSTS: Ten-year anniversary of 2006 Finance Act requires trustees to check tax position
This month sees the ten-year anniversary of the major changes in trust taxation introduced in the 2006 Finance Ac Finance Act. Many ‘relevant property’ trusts created after 22 March 2006 will for the first time have reporting obligations and potential inheritance tax liabilities under the ten-year periodic charges created by the bill, as most such trusts will have avoided the initial charge and exit charges by keeping settlements within the settlor’s available nil-rate band.
The 2006 Finance Act introduced significant changes to the taxation of trusts in the UK. Now, a decade later, trustees must review their tax position to ensure compliance with current regulations. This review is essential to avoid unexpected tax liabilities and penalties.
Impact of the 2006 Finance Act
The Act affected many trusts by changing the inheritance tax (IHT) rules. Most discretionary trusts and certain interest-in-possession (IIP) trusts became subject to periodic charges every ten years and exit charges when assets are distributed. These rules continue to impact trustees today.
The Ten-Year Anniversary Check
Trustees of affected trusts should now assess their tax position, considering:
The ten-year anniversary charge – A charge of up to 6% on the value of trust assets.
Exit charges – Taxes on distributions to beneficiaries.
Reporting requirements – Ensuring correct filings with HMRC.
Key Actions for Trustees
Review trust deeds and financial records.
Calculate potential IHT liabilities.
Ensure compliance with reporting obligations.
Seek professional advice if needed.
Conclusion
With the ten-year milestone of the 2006 Finance Ac Finance Act, trustees must proactively check their tax status. Proper planning and compliance will help mitigate risks and ensure smooth trust administration.
