On the 10 December 2014, the government announced measures to put an end to the use of multiple trusts, (otherwise known as pilot trusts or Rysaffe planning) as a way to mitigate liability to inheritance tax.
The idea of using multiple discretionary trusts was to enable each of the trusts to claim a complete nil rate band, which could result in a significant reduction in the effective rate of tax payable on any periodic or exit charges.
The measures introduced affect any additions of property on the same day (for example, on the date of death) to two or more trusts created by the same settlor, as these would be treated as related settlements for inheritance tax purposes. Taxpayers can no longer avail themselves of multiple nil rate bands by creating multiple trusts through their will, then on death adding substantial amounts of property.
However, as a transitional measure where the deceased’s will makes transfers into multiple trusts on death, the settlements are protected from the rule provided the will was ‘substantially’ drawn up before 10 December 2014 and death occurs before 6 April 2017.
As this deadline is reached shortly, it is crucial for clients whose wills were drafted before 10 December 2014 and use multiple trusts to seek professional advice as soon as possible. Failure to do so could leave the trustees with unexpected tax liabilities in the future.