DoV to create trust for minor


(Tobias Gleed-Owen) #1

Our client is the sole beneficiary of his mother’s Will, and is considering using a Deed of Variation to pass funds to his minor child. We are weighing up whether or not to use a trust to hold the funds - the client would like to ensure that income tax is paid at the child’s rate rather than his own rate.

Normally if a parent creates a bare trust (or any kind of trust) which pays income his minor child, the income would be taxed at the parent’s rates under the settlor-interested rules. The client hopes to avoid this.

Is this avoided by using a DoV so that the trust is effectively established under the mother/grandmother’s Will? Or does this not help because DoVs are only read-back for the purposes of IHT and CGT?

Tobias Gleed-Owen
Hewitsons LLP


(Andrew M Mortimer) #2

No it is not avoided.

Client will be settlor for income tax purposes

Many years ago when I worked for HMRC and we provided rulings on Deeds of
Variation we used to quote Waddington v O’Callaghan 16 TC 197 .

Andrew M Mortimer


(Nigel Scase) #3

The DOV would only make the deceased the settlor for IHT purposes. The child’s father would remain the settlor for IT & CGT purposes.

Nigel Scase
Greene & Greene


(jdickens) #4

I think that where deeds of variation are concerned and a trust is created the settlor, for IHT purposes, is the deceased, but for income tax purposes the settlor is deemed to be the person whose share has been varied, i.e. the mother in this case.

As such, the parental settlor rules come into play and the income produced by the share being varied will be considered to be the mother’s whilst the son is a minor.

So I don’t think the DoV helps income tax wise in this case

James Dickens

Grierson Dickens


(rdenby) #5

I think that is correct, the DOV won’t help. The other option is perhaps to invest in a non-income producing asset such as a life assurance bond, with perhaps child and a.n.other as lives assured to avoid a chargeable gain being triggered if a death occurs, then transfer out to beneficiary once he is of age.

Richard Denby
Denby & Co