Release of IPDI & subsequent IIP

Trusts Discussion
1

I am dealing with a Will Trust in which the Will states that the residue shall be held in trust to pay the income to Mrs A for life, and after her death the capital and income for her children as living at the date or her death.

A number of years later, Mrs A released her life interest by Deed. I believe this would have been a PET. The trustees then held the income of the trust for her two children but, since Mrs A was still living, the capital did not yet vest.

More than seven years later, Mrs A has now died and the capital vests with her two children, both of whom survived her.

My questions are:

  1. Was there a disposal for CGT in 2009?
  2. Is there a deemed disposal following Mrs A’s death now?
  3. Did the trust ever enter the relevant property regime?

Tobias Gleed-Owen
Hewitsons LLP

2
  1. no
  2. yes
  3. yes

Simon Northcott

3

Thanks Simon
I presume that the trust became a relevant property trust in 2009, since it became a non IPDI IIP trust, in which case there is now an exit and holdover relief is possible for CGT.
Why was there not a CGT disposal in 2009 though?
Tobias Gleed-Owen
Hewitsons LLP

4

I assume the release was by way of surrender.

The surrender would be a chargeable transfer for IHT but no CGT charge would arise at that time.

On death, for CGT purposes, a deemed disposal occurs and a CGT charge arises (possibly subject to a hold-over claim).

On surrender is there not a gap in the beneficial interest as no such interest falls into possession at that time?

Malcolm Finney

5

In 2009 the reversioners became entitled to an IIP, but there absolute interest would not arise until their Mother’s death. As such the assets remained settled, so no CGT disposal. this would not have been a PET, but a lifetime chargeable disposal, as the trust then became a RPT.

Simon Northcott