Inheritance Tax Thresholds
The nil-rate band for 2006/07 is £285,000. In addition, the thresholds above which the nil-rate band ceases to apply for future years have been set at £300,000 for 2007/08, £312,000 for 2008/09 and £325,000 for 2009/10.

Aligning the Inheritance Tax Treatment of Trusts
Changes are to be made to the special inheritance tax rules applying to accumulation and maintenance (A&M) and interest in possession (IIP) trusts. Legislation in the forthcoming Finance Bill will limit the rules to trusts that are created:

• on death by a parent for a minor child who will be fully entitled to the assets in the trust at age 18;
• on death for the benefit of one life tenant in order of time whose interest cannot be replaced (more than one such trust may be created on death as long as the trust capital vests absolutely when the life interest comes to an end); or
• either in the settlor’s lifetime or on death for a disabled person.

Any other trusts will fall into the mainstream IHT rules for ‘relevant property’ trusts, broadly those trusts in which no person has an interest in possession. Changes to the IHT treatment of trusts will have a number of implications for capital gains tax particularly in relation to hold-over relief.

The new rules will apply on and after 22 March 2006 to new trusts, additions of new assets to existing trusts and, subject to transitional provisions, to other IHT relevant events in relation to existing trusts. Transitional rules will provide for a period of adjustment for certain existing trusts up to 6 April 2008, and for continuing exclusion from the ‘relevant property’ charges if they satisfy certain conditions for ongoing protection.

Changes are also to be made to the inheritance tax gifts with reservation provisions. Where an individual is beneficially entitled to an interest in settled property, and continues to be treated for IHT purposes as owning the property, a termination of the interest in the individual’s lifetime on or after 22 March 2006 will be treated as a gift for the purposes of the provisions. So if the individual retains the use of the settled property after their interest in it ends, it will remain chargeable in their hands in the same way as if the individual had formerly owned it outright.

Pensions Simplification and Inheritance Tax
IHT concessionary practice dating from 1992 in relation to pension choices by scheme members who die under the age of 75 is to be put on a statutory footing. Under the concession, IHT is not charged if scheme members do not exercise their right to take pension benefits, for example, when an enhanced death benefit is paid to a beneficiary who is a spouse, civil partner or financial dependant of the scheme member as a result of the member not taking their pension when their life expectancy was seriously impaired.

An anti-avoidance measure is to be introduced to charge IHT on the death on or after the age of 75 of a scheme member where funds are held in an alternatively secured pension (ASP). The charge is intended to apply in the case where individuals use ASPs to pass on tax-privileged retirement savings to their dependants rather than to provide a pension in retirement. Broadly, an IHT charge will be made on certain left-over ASP funds on death of the scheme member (or later) but funds paid to charity will be exempt. The charge will be based on the value of the taxable property at the time the charge arises and will be calculated by reference to the tax-free threshold and rate of tax in place at that time. The measure will also cover two instances where the tax charge on ASP funds overlap.

The above provisions are to take effect on the death of a scheme member after 5 April 2006.