H and W were in partnership. H dies, his share being subject to a life interest for W, subject to that on discretionary trusts.
BPR would have been available on H’s partnership interest. There was no partnership agreement and so the partnership will have determined on death.
W continues the business after death as a sole trader in the same premises, which were a partnership asset.
Would the combined effect of s106-109 IHTA (replacements and successions/successive transfers) mean that if the trustees appointed out H’s share of the former partnership assets to the children before 2 years after H’s death, 100% BPR would be available,
and CGT holdover relief?
Not sure of the answer, but a possible alternative option is to perhaps advance the business assets to the surviving spouse who then redirects into a discretionary trust via a deed of variation. Provided eligible business assets are advanced does this work?
I do not believe this would work, as the advance is not read back by s144, so it is not a variation of a disposition under the Will for IHT purposes, rather a gift of an asset disposed of by the trust.
Whereas if you advance the remainder interest held on discretionary trusts absolutely to some other beneficiary, then they could collectively vary the disposition under the Will?
Would it not be preferable for W to enter into a variation, excluding her life interest in the former partnership assets, so that for IHT purposes they are treated as passing directly into the discretionary trust, thus allowing the trustees to appoint such assets to the children with the benefit of s.144 IHTA 1984.
I would be wary of the trustees exercising their discretion for the purpose of enabling the application of Saunders v. Vautier if the outcome is not something that could not necessarily have been achieved otherwise. There is a risk that this could be challenged as a fraud on a power (see Wong v. Burt [2005] 1 NZLR 91 – which it is generally viewed as “persuasive” in English Law).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Not if it is subject to a life interest. The combination of s144 and s142 only works if s144 applies, which it does not if there is an initial life interest.
With regard to Simon’s last post, if the life interest is excluded by IoV effective under s.142, for IHT purposes the initial life interest is treated as never having existed, thus enabling the use of s.144 on the subsequent appointment out of the discretionary trust (accelerated by the IoV).
When preparing the IoV, it should probably be stated that the variation is deemed to be effective from the date of death of the deceased, so that the position was not muddied by the fact that a deed is effective from its own date (applying Waddington v, O’Callaghan, 1931).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals