10 year anniversary date for Will Trust

Trusts Discussion
1

I have a discretionary Will trust created from the residue of a will. The Trust was created and assets allocated about 18 months after the date of death. I am reasonably happy that the date of creation of the trust is the date of the trust deeds and in particular the deed of appropriation.

However I’m unsure as to the date for the 10 year anniversary charge. The trust pages seem to say it’s the date of creation but I’m being pointed at the inheritance tax act which says property becomes settled on date of death. Inheritance Tax Act 1984

Any thoughts?
Thanks

2

The mystery here is why you give credence to anything written on Gov.uk, especially when as in this matter, you have looked up the law.

Gov.uk is unreliable, sometimes deliberately so. Take this guidance for example:

It says:

"10-year anniversary charge

The 10-year anniversary charge can be paid up to 6 months after the 10th anniversary of the date the trust was set up."

  • Why ‘can’ and not ‘must’?
  • The deadline is six months after the end of the month of the TYA not exactly six months after the event* (although the guidance is correct: you can pay early), and
  • Says that the tax due on the second and subsequent TYAs tax should have been paid decades ago.

Will trusts have a deemed creation date of the date of the settlor’s death.

*An important detail if you are filing late as you are expected to include interest on late paid tax in the IHT account and you can’t do that if you are given duff info about the due date…

3

Fair point. Again it shows the lack of thought in the system as HMRC have no knowledge of the date of death as it isn’t included in the trust register.

4

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’
’The question is,’ said Alice, ‘whether you can make words mean so many different things.’
’The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.”

(Lewis Carroll, Through the Looking Glass)

HMRC is the Master here so “can” means “must” if they say so. But, er, perhaps not!

In R v HMRC oao London Fluid and others [2023] EWHC 2206 HMRC instructed Crown Counsel to argue that very point. A cheap shot. Would you buy a used car from or rely on guidance issued by such people? The taxpayer won on this point: “can” meant can and service of process was good, thanks to Mrs Justice Foster DBE.

“10th anniversary of the date the trust was set up” requires the reader, who may be a lay person, to know what in law is the key date and that with a will trust it is the date of death under s83 IHTA.

BTW, as to the original query, there is an argument based on s66(2) IHTA that the rate of tax should be reduced because the property did not actually become comprised in the settlement until 18 months after the death. That requires HMRC to apply its own guidance on when residue is ascertained. In my view this factual position is not altered by s91.

The key quotes from London Fluid are:

" 36. Whilst HMRC explain the use of the word “c**an” as explicable because hard copy personal service was still, technically, acceptable, the Claimants say the permissive nature of the language indicated rather, an option. There is a clear distinction, they argue, between the use of the word “must” in respect of employment claims, and “can” in respect of HMRC judicial review proceedings.

69……… HMRC’s case is that the document has effect as a strict rule of procedure. The language of the Press Release did not assist the reader to understand that although the word “can” was used, it in truth meant “must”…………… The guidance ought, in the present case, to have stated words to the effect (without intending to draft) of “if you choose to effect service by email, rather than by hardcopy, it is essential that you serve the new proceedings email with the materials first. This is so, whether or not an HMRC solicitor has already been assigned to the case”.

  1. Accordingly, I exercise the jurisdiction under CPR 6.15 by reference to Barton v Wright Hassall LLP and by reference to the analysis of the relevant factors to be considered when considering the exercise of that jurisdiction, as set out in Good Law Project."

Jack Harper

5

“10th anniversary of the date the trust was set up” requires the reader, who may be a lay person, to know what in law is the key date and that with a will trust it is the date of death under s83 IHTA."

From s83 IHTA i would have thought a lay person would read that the property becomes comprised at date of death but why has this anything to do with the date the trust was set up.

Anyway looks like it will be easier to just go with DOD just in case. Just means I need to get my skates on.

6

So what do you think a lay reader would understand by the date “the trust is set up”? It needs s83 and s48A to specifically legislate (and rightly so) for the avoidance of doubt and to exclude solid contrary opinion, applying indeed only for the purposes respectively of “this Chapter” and “this Act”. Properly indicating that this constitutes a divergence from the expected legal position and typical counterfactual. I’m with Mrs Justice Foster; HMRC’s guidance should say exactly what they wish to convey and bearing in mind that it is aimed at all types of reader.

Jack Harper

7

I thought that you would enjoy reading London Fluid, Jack.

It seems appropriate to remind Gilbert of the LITRG report into the quality of Gov.uk guidance, which can be found here:

https://www.litrg.org.uk/sites/default/files/00_Guidance_Report_2023_FINAL.pdf

8

Thanks for that link Duncan. Interesting if a bit long :slight_smile:
Seems like i was giving the HMRC guidelines too much credance. I had accepted that it was difficult to find things but thought that at least it would be correct…

Maybe there should be an agreement that where the guidelines are incorrect or ambiguous then penalties will not be imposed. (maybe there is - I’ll find out soon)

As they are supposedly HMRC Internal manuals anyway there’s a fair chance that they wouldn’t know either :wink:

9

My understanding is that if the trust was established by a specific legacy in the will saying that the available nil rate band is to be held in trust and that legacy is prior to dealing with residue then the trust is established from date of death. At that date the asset belonging to the trust is the right to have the estate administered by passing assets to the trust to fulfil the legacy.
By contrast if the trust is carved out of residue then it is established at the date when assets are appropriated to it, as you surmise.

10

That was my understanding from reading the HMRC guidelines which sound very clear. However the general consensus seems to be that HMRC guidelines are not necessarily correct (to put it diplomatically) and one needs to refer to the Inheritance tax Act. Which is very unclear and for Inheritance tax (which the 10 year charge essentially is) the transfer is based on date of death.
Can’t say I’m yet fully convinced but have decided that rather than argue the case it will be easier to do the assessment now. Even though presumably HMRC will use their own guidelines so probably don’t care either way.
Thanks anyway.

11

The original posting was in relation to when the 10 yearly charge falls due.

As previously identified, this is governed by s.83 IHTA 1984:

Property becoming settled on a death.

Property which becomes comprised in a settlement in pursuance of a will or intestacy shall for the purposes of this Chapter be taken to have become comprised in it on the death of the testator or intestate (whether it occurred before or after the passing of this Act).

Even those who doubt the ability of HMRC to understand (or apply) the law, this seems a clear statement, which can only be uncertain if the actual date of death cannot be established. Discussion on when a trust might otherwise be “established”, which appears to be construed as the trust being constituted by the appropriation of assets to the trustees, does not change the effect of s.83, instead it merely sows confusion.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

12

Yes but the guidelines say that the 10 year anniversary is due 10 years from when the trust was established not 10 years from when the property became comprised in it.
For a non-will trust if property is added to the trust after it is set up the 10 year anniversary is still based on the trust start date.

13

I thought that you had agreed with me that guidance on Gov.uk was not to be trusted.

Tax law frequently requires something to be deemed to be the case than is not in fact the case. You will struggle understanding tax if you don’t appreciate that.

As for your final question, the answer is ‘yes’ but when you compute the tax you include a discount for the fact that some of the assets have been held for less than the full ten years.

14

You are right about the timing of the 10 year anniversary but s66(2) tempers the rate of tax where property has not been in the trusts or has not been relevant property for the entirety of the previous 10 years

Jack Harper

15

I agree that for a trust which does not arise under a will or intestacy, the 10 year anniversary is determined under s.48A IHTA 1984 – the date upon which property first becomes comprised in the settlement – which is not necessarily the date of the trust instrument. However, for trusts arising under a will or intestacy, s.83 is clear.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

16

Yes sorry . Duncan is right. I need to accept that HMRC guidelines are confusing/wrong. Just got sidelined by Fiona’s post, who must have drawn the same conclusion that I had done originally. I stand corrected and will not raise the subject again. Thanks everyone for your input. :slight_smile:

17

So just to get this clear in my mind, whether the trust is created by the Will or by a deed of variation, It is the date of death, which determines the creation date and the date from the 10 year Anniversary runs?

Patrick Moroney.

18

Yes, that is the effect of s.83 IHTA 1984.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals