Finance Act 2006

The 2006 Finance Act brought unheralded and drastic changes to Life Interest (IIP) and Accumulation and Maintenance (A & M) Trusts.

By working with the Society of Trust and Estate Practitioners (STEP), the HHA was able to ensure that the generic concerns of our members were addressed within the package of STEP-drafted amendments to the Finance (No 2) Bill that was taken up by the Opposition and which gained support in the national press. That initiative prompted the Government to table its own amendments, restoring the spouse exemption from Inheritance Tax, ameliorating slightly the new tax burden on A & M trusts for beneficiaries between 18 and 25 years of age, widening the exemptions from the new charging regime for trusts for the disabled and clarifying the exemption for payments into existing Life Policies held in trust.

However, no compromise was possible to remove the intrinsic disadvantage that the Government’s measures impose on the use of IIP and A & M trusts, as compared to the pre-Budget situation and compared with outright transfers. Treasury Ministers remained unreceptive to the case that the trust regime has been instrumental in maintaining the integrity of Britain’s historic houses, their contents and surrounding land.

Since 2006 the HHA has pursued one issue in particular with HMRC, the question of whether expenditure on repairs by the beneficiary of an IIP - the Life Tenant - on assets held within that trust, such as a historic house, constitute an addition of value to the trust and thus whether they trigger the "relevant property" regime appying to discretionary trusts.

Early in 2010 the HMRC finally confirmed that its answer to this question is "yes".  Although the HHA disagrees, we welcome the HMRC's clarification and its undertaking to consult us on guidance, to be published.  The HHA has been calling for such guidance since 2007.  We shall update our members through the pages of Historic House and on this website.