Can the trustees of a trust appoint out sufficient funds from a will trust using s144 within 2 years of death, in order to bring the trust fund to less than the nil rate band, so that no exit/anniversary charges are ever payable and the trust can continue to function with no IHT charges, or is this scenario simply not possible and all the trust funds need to be fully appointed out within 2 years and the trust wound up for s144 to be utilised.
Claire Carr
Rexton Law LLP
If the power of appointment allows it, it can be done, but iht would still be payable later if the value of the fund exceeded the NRB in the future.
Simon Northcott
Agree with Simon: yes, this can be done which could lead to a zero rate charge on all distributions in the first 10 years. This allows you to keep options open during the 1st 10 years, and review the then-value of the trust against the then-NRB approaching the 1st 10 yearly charge.
Incidentally, if the “starting value” of the settlement (after the s144 appointment) is (broadly) less than 80% of the settlor’s NRB, you will be excepted from making IHT returns on distributions under the Excepted Settlement provisions (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm06125). Otherwise, you will potentially need to make a return after each capital distribution in the 1st 10 years…
Chris Jones
Rock Consultancy
There is of course no need to take any action with respect to the trust within the two years following death. The two year period is of relevance only where “reading back” is required.
The section is in point if, broadly, an event occurs in respect of which IHT would be charged under Chapter III Part III. There is, however, no requirement that the whole of the trust property be appointed out.
As pointed out above, if the object is to attempt to avoid future IHT charges on the trust property by reducing it to below the current nil rate band this will not work if the trust property appreciates above future nil rate bands.
Malcolm Finney