The changes to the taxation of trusts announced in the last budget were seen as doing away with a lot of the uses of trusts as tax planning mechanisms. Gordon seemed to think that trusts were only in existence to avoid tax although there are a lot of other very good reasons for their use, in particular allowing you to gift the benefit of an asset to someone else without losing control of the asset.

In summary, the rules that previously applied to discretionary trusts were also extended to cover Interest in Possession (IIP) and Accumulation and Maintenance (A&M) trusts.

To summarise the tax consequences of these trusts are now aligned so that...

1. There is a lifetime charge on the value of the property going into the trust of 20% to the extent the cumulative nil rate band is exceeded.
2. There is a charge every 10 years on the value of the property in the trust.
3. There is an exit charge when the property leaves the trust.

The level of these charges will depend on the particular circumstances but often they can be minimal. For example if the value of what goes into the trust is below the donor's nil rate band of £285,000 (after taking into account other chargeable lifetime gifts in the previous 7 years) there will be no charge. 10 yearly charges may also not occur if the value of the trust property at the time is below the nil-rate band.

However, there is one major benefit of transferring property into these trusts which is that Capital Gains Tax holdover relief is available to ensure there is no capital gains tax payable on the transfer into the trust. Previously there would have been for transfers to IIP and A&M trusts. CGT is also chargeable if the property is gifted directly. So the use of trusts now allows CGT to be avoided on gifts that previously would have been caught - thank you Gordon!

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