FOCUS 89 – Bypass trust update
Earlier this year, HMRC issued a consultative document, with a view to “simplifying” the way in which Inheritance Tax is calculated. If the changes were enacted, it would mean that for some clients it could be disadvantageous to have multiple trusts, particularly if any of the trusts hold minimal values. This may impact on SIPP clients looking to establish a Bypass Trust with a view to receiving lump sum death benefits.
In the scenario where a client holds significant assets and then establishes a new pilot trust as a Bypass Trust, this could have the effect of increasing the amount of Inheritance Tax payable on the fully funded Trust. When a pension scheme member is establishing a Bypass Trust we are now enquiring as to whether they have any existing trusts. If they do, then it may be preferable to nominate an existing Trust as the preferred recipient of any pension death benefits, rather than establish a brand new Bypass Trust for this purpose.
We hope to see draft legislation in December on this area. In the meantime for those without existing Trusts the Bypass Trust will continue to provide asset protection, control, flexibility and IHT savings to your clients as well as other business opportunities to you the adviser.
As always, it will be vital for pension scheme members to take independent legal advice when considering the establishment of a Bypass Trust.