I am currently reviewing a Settlement created in 2003. It contains the following term: “The trustees shall stand possessed of the capital of the Trust Fund UPON TRUST as to one third for the said X absolutely and as to two thirds for such of A B C and D […] as shall attain the age of 25 years if more than one in equal shares absolutely with the income being due proportionately to those persons entitled to the capital (whether outright or contingently) at the time the income arises.”
A, B, C and D are the settlor’s grandchildren. There are no additional powers of appointment or advancement. The sole trust asset is a property which has always been let.
The Trustees were previously advised that this was a discretionary trust. My first thought was that i) since X is entitled to both capital and income on his share, that is effectively held on a bare trust, and ii) that each grandchild’s interest was initially akin to an 18 to 25 trust (which it was possible for a grandparent to create in 2003) while they were under 18, becoming a Relevant Property Trust when they turned 18, and becoming an IiP when they turned 25.
I would greatly appreciate the views of others as I wonder if I am over complicating matters.
Rhoddy McGrigor
McMillan Williams
I agree that X’s share is held on bare trust for IHT purposes (Crowe v Appleby might be in point where CGT is concerned, although I am doubtful and haven’t checked the point).
The IHT position for A, B, C and D depends on their ages on 22 March 2006. Any of them who were over 18 would have had an interest in possession, which retains its previous tax treatment. Any who were under 18 would not have had an IIP because of s. 31 TA1925. From the date of attaining 18 (i.e. attaining an IIP) or from 6 April 2008 if earlier their interest would have been subject to the provisions of s. 71D instead i.e. as an 18-25 trust.
Paul Davies
DWF LLP
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Thank you Paul, very helpful as always. The trustees have confirmed to me that on 22/3/2006 A and B were over 18 while C and D were under 18. I am therefore comfortable with the positions of X, A and B, but remain unsure as to how the interests of C and D were treated for tax prior to 6 April 2008. I cannot see that the Settlement terms created a true A&M trust as defined at IHTA 1984 s71.
Any further contributions would be gratefully received.
Rhoddy McGrigor
McMillan Williams
Remember that s. 71 was changed by FA2006. Prior to 22 March 2006 it said a trust met the conditions for the section to apply if, on or before attaining the age of 25 years, the beneficiary would become entitled to the settled property, or an interest in possession in it (but that no interest in possession currently existed). A standard type of trust for a class of young (<18) beneficiaries of the sort you have described would have met the conditions for s. 71 to apply. I will concede however that this is an area where it is easy to make a slip, and that it is not always easy to remember now what we took for granted prior to 2006.
Paul Davies
DWF LLP