Brown's new inheritance tax

HUNDREDS of thousands of people who have tried to shield their assets from death duties could have their plans wrecked by Gordon Brown, it has emerged.

The Chancellor is poised to change the law so that assets or cash held in trusts will be subject to a new income tax charge from April.

Every year, some 100,000 middle-class families place their assets in 'gift-and-loan' trusts to maximise the amount their children inherit.

The schemes typically allow people to 'lend' assets or cash worth £100,000 or more to a trust. They can then withdraw 5% a year over 20 years free of tax, while interest accrues.

Any growth in the trust is considered outside the person's estate and can be left to children or grandchildren free of tax.

This means that, over a 20-year period, inheritance tax can be avoided completely.

From April, however, all trusts set up since March 1986 will be subject to income tax, although the Inland Revenue has not decided how high the new charge will be.

Insurers and financial advisers have accused the Government of going back on its word. The Association of British Insurers said the Revenue had initially indicated that the trusts would not be affected by its plans to close inheritance tax loopholes in the Finance Bill.

A spokesman said: 'The Revenue seems to have changed its view. We have major concerns about this.'

A director of financial adviser Towry Law, Clive Scott-Hopkins, said: 'This is a bombshell. This is a very innocent arrangement into which an awful lot of people have entered, particularly younger people in their 40s and 50s. It's not for the super-rich but for middle England.'

Tory Treasury spokesman Howard Flight condemned the plans as 'misguided and ill-thought-out'.

But the Treasury rejected the accusation that it had broken its word. 'There has not been a change of heart,' a spokesman said. 'The Revenue has always been clear that this is about tackling complex avoidance schemes.

'It's about preventing people using artificial schemes to avoid paying tax at the expense of those who don't use this type of scheme.

'Whether a particular scheme will be affected by the rules depends entirely on the technical detail.'