Research Shows Prevalent Use of Trusts by IFAs
Around 65% of IFAs arrange discounted gift trusts on behalf of their clients, illustrating the widespread impact of changes to tax on such trusts that were announced in the Budget, according to research 1 by threesixty, the fee-based IFA support services provider.
Under the new rules, creating an ‘Interest In Possession’ or ‘Accumulation and Maintenance’ trust, both of which are discounted gift trusts, will now incur a chargeable lifetime transfer fee in the form of a tax charge of up to 20%. In addition, there will be a potential anniversary or periodic charge every 10 years of 6% of the excess of the trust fund over the IHT nil rate threshold, which is currently £285,000 for the 2006/2007 tax year. There is also the potential of an additional ‘exit’ charge in respect of monies leaving the trust.
David Ingram, a partner at threesixty, commented: “I don’t think the government or the Treasury fully understood the impact these changes would have. Most if not all IFAs should be using trusts for at least some of their clients, but this survey gauges the impact on the trusts that were most affected by the Budget. Whether IFAs use these trusts or other kinds is entirely between them and their clients.”
The results were mixed as to whether IFAs would now use Enterprise Investment Schemes for IHT purposes as an alternative to discounted gift trusts following the changes in the Budget. While 8% of IFAs said they would definitely use the schemes and 21% said they probably would, 26% said they definitely would not and 7% probably not, while 38% were unsure.
1 Research was conducted among 130 IFAs who attended threesixty seminars around the country in April and May. They included clients and non-clients of threesixty.