The UK Finance Act 2006 brought drastic and far reaching changes to the way in which commonly used IHT mitigation trusts are now taxed for IHT purposes.

Every British domiciled individual who’s estate exceeds ?285,000 needs to consider the ramifications of the changes and plan accordingly – otherwise 40% of their total worldwide estate over the Nil Rate Band may be due to the Chancellor of the Exchequer upon their death. Inheritance Tax has commonly been referred to as a voluntary tax due to the multitude of easy options to reduce an IHT liability but the Finance Act 2006 has made such mitigation options much tougher to achieve. The problem is even more acute for British domiciled individuals whose spouse is non-UK domiciled as the exemption on transfers between spouses does not apply (there is only a ?55,000 allowance over the NRB)

Who is effected? Anyone considered UK domicile is subject to the IHT regime on their worldwide assets. Domicile is a complex area as it is not defined in common law but essentially everyone born in the UK, born to UK national parents or who has lived in the UK for over 17 years could be deemed UK domicile. Your domicile of origin is very hard (but not impossible) to change so even UK expatriates who have lived overseas for decades moving from country to country are likely to still be UK domicile

What changes did the UK Finance Act 2006 bring? Before the Finance Act 2006, anyone who did not want access to capital could set up a simple gift trust, from which they were excluded from being a beneficiary. This was as simple as IHT planning got, because the transfer into trust would be a potentially exempt transfer (Pet), so the gift would fall outside the settlor’s estate after seven years. Under the new regime, however, the creation of any flexible lifetime trust will fall within the relevant property regime. This means gifts above the nil-rate band will be subject to tax at 20% at the time the gift is made.

How do you mitigate IHT liabilities after the Finance Act? As UK IHT mitigation has become a much more complicated following the Act it is essential that you sit down and discuss your personal circumstances in detail with your Infinity Consultant. There are several layers of planning that need to be considered and Infinity’s knowledge and access to UK taxation experts means we can guide you through the process in the most cost efficient and effective manner. Our Consultants will consider each of these options in turn to develop your IHT mitigation strategy:

	Maximise Nil Rate Planning
	Insuring the IHT liability using whole of life assurance
	Gifting with controlled distribution
	Advanced Planning using:-
		Will Planning
		Bare Trusts
		Gifts to flexible trust below the Nil Rate Band
		Regular Savings into Gift Trust using annual Gift Allowances
		Absolute Discounted Gift Trust and Discounted Gift Trusts