The Chancellor's Autumn Statement has confirmed that the single settlement nil rate band on trusts will not come into effect in April 2015 following consultation responses.
The proposed changes were to prevent multiple trusts being set up on different days each with its own nil rate band below the £325,000 inheritance tax (IHT) limit.
This arrangement provides advisers with ways to reduce taxation on inheritances and is popular with both clients and advisers.
The government has said it will continue efforts to alter this practice however it will now look for different methods.
Trusts set up prior to 6 June 2014 would not have been affected by the changes unless they added new property to the trust.
Many advisers consequently avoided acting upon trusts set up before this date to avoid removing tax advantages, further guidance will be needed on how advisers should act.
Rachael Griffin, head of technical marketing at Old Mutual Wealth, said:"This appears to be a u-turn on the Government's previous position. This is potentially good news in terms of removing the administration burden for the settlors of trusts, but advisers face a period of uncertainty regarding what they should do with existing trusts."
Julie Hutchison, savings and tax expert at Standard Life said: "We're glad to see that the Government has scrapped plans to introduce an IHT settlement nil rate band which would have seen each settlor have just one nil rate band which they could allocate across all relevant property trusts that they've created.
"The result could have saddled clients with trusts where the purpose is to accept the payment of death benefits, such as from life insurance contracts and pensions, with the burden of tax compliance and reporting, even where no inheritance tax is due. We await the detail in the Finance Bill and hope that it delivers on the promise of simplifying the taxation of trusts and IHT."
