18-25 trust not distributed

I have an 18-25 trust whereby the last beneficiary, who has now attained age 25, has suggested that he does not require the proceeds yet and so the trust is still being managed.

Does the trust now need to be registered on TRS?
What are the consequences of the trust not paying the distribution?

When a beneficiary becomes absolutely entitled under this type of trust, the beneficiary is not obliged to take the funds but from then on the trustees will hold the fund on bare trust.

The vesting date (25th birthday) will be a notional disposal and subject to an IHT exit charge, max 4.2%, depending on the value.


That sounds about right!

I had a similar case some years ago - it’s my understanding the trust would be suffer tax consequences under IHTA 1984 71(G).

“In all other circumstances the charge is calculated under IHTA/S71G” see - IHTM42816 - Special trusts: Age 18-to-25 trusts - HMRC internal manual - GOV.UK (www.gov.uk)

  1. 71D.Age 18-to-25 trusts
  2. 71E.Charge to tax on property to which section 71D applies
  3. 71F.Calculation of tax charged under section 71E in certain cases
  4. 71G.Calculation of tax charged under section 71E in all other cases

Richard C. Bishop

Upon attaining age 25, the beneficiary will have become absolutely entitled as against the trustees and an IHT and a CGT charge will have arisen.

If the trustees retain the funds in trust, they need to consider what their role is then. They are no longer the “principal” and if investments are held they are then at risk of (being deemed to be) undertaking a regulated activity.

Any authority granted to hem under he terms of the trust may also have expired on the beneficiary attaining age 25, so that, if professionals, they may have no power to be remunerated (for example), unless authorised by the beneficiary. I suggest they should also establish why he beneficiary does not want the funds transferred to them – might this affect any benefits to which they are entitled or, perhaps, reduce their apparent wealth for another reason.

The trustees will want to be satisfied that they are not going to be caught in the middle of a wider issue as a result of

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where IHT is in point, as here, it is possible to elect to hold over any capital gain, provided both parties agree and that such an election is submitted within the appropriate time limits

Citroen Wells

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Its my understanding if a special trust fails IHT is payable at the special rate and the trust converts to a discertionary trust with extended beneficiaries.

See: Trustee Act 1925/ S33(1)(ii)

On the assumption at aged 26 the beneficiary received the capital the trust would be taxed under the RPR.

Either way - I’d suggest the 18-25 existing trust will suffer tax calculated at the special rate.

Richard C. Bishop

Richard, I was not aware that an 18-25 trust falls within s.33 Trustee Act 1925 (Protective Trusts) and re-assert what I said in my previous post – immediately the beneficiary attains age 25 the trust terminates and the trustees hold on bare trusts for the beneficiary. I can see no grounds for any income, post attaining age 25, being taxed at the “special rate” nor IHT applying as though the inheritance is within the IHT relevant property regime.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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