A change to trust laws made in the last budget could mean Muslim families in the UK are hit with massive inheritance tax bills, according to a report in the Guardian newspaper.
The chancellor of the exchequer, Gordon Brown, announced in the budget last March that trusts could not be set up as a means to avoid paying inheritance tax. Under English law, a widow or widower can inherit in full without paying any tax. Only children or other beneficiaries have to pay tax.
However, under Sharia law, Muslims are required to distribute their wealth on death through a special Islamic will. Widows are entitled to an eighth, widowers a quarter, with the rest having to go to other family members. Trusts were used as a way of redistributing assets without incurring inheritance tax.
Lawyers and accountancy groups have already challenged the changes and urged a rethink to the law, which is affecting will writing and life insurance processing.
The Treasury said: The government has provided for the position where a trust set up on death allows a widow to live in the family home as a life tenant with the asset passing to other family members on the widow’s death. This arrangement is exempt from the new IHT [inheritance tax] rules. We are now exploring how to ensure that trusts set up in accordance with Sharia law can benefit from this exemption.