Annual exemption and tax rates

The annual exemption for individuals has been increased to £8,200 for 2004/05 (2003/04: £7,900). Trustees receive half this figure (£4,100 for 2004/05; £3,950 for 2003/04), although this may be shared between trusts which have been set up by the same person.

Anti-avoidance measures

The Chancellor has closed down two tax avoidance schemes which took advantage of reliefs which might be available to a trust, but would not be available to the settlor of the trust. The schemes involved transferring an asset into trust and claiming gifts relief to pass the chargeable gain to the trustees; then selling the asset in the trust with the benefit of the trustees' extra relief, so the gain passed in by the settlor would not be taxable.

From 10 December 2003:

• Where a settlor could ever benefit from the trust in the future, gifts relief can no longer be claimed on transferring an asset to the trust, so the gain up to that point will be charged on the settlor.
  
  

• Where the asset is a house, and the first rule does not apply, the settlor will have a choice - either gifts relief can defer the charge when the house is transferred into the trust, or the trustees will be able to claim the only or main residence exemption for a beneficiary living in the house, but not both.
  

Where gifts relief was claimed in the past on a transfer of a house into a trust, the main residence exemption stops running from 10 December 2003 - so the second rule will apply in part to existing arrangements, and may make some gains chargeable where such a trust has been established in the past.