Advance of residue subject to age contingency

Trusts Discussion
1

Apologies if this has been raised before - I see a similar topic from September last year but I am not clear on the upshot in the following circumstances.

I have a deceased who died in December 2022 leaving a WiIl dated November 2006.

The Will reads

"My Executors shall hold my estate upon the Trusts contained in Form 8 of the Statutory Will Forms and subject thereto:

PAY the residue in equal shares to my son X and my granddaughter Y and in the case of my said granddaughter on her attaining the age of 21 years."

The Will applies the STEP Standard Provisions 1st edition and there are no other provisions re income.

The granddaughter Y was 16 at the date of death and has just turned 18. There is a proposal to transfer all her 50% share to her now.

The short question is: what are the (potential) tax consequences?

I think this is a relevant property trust (because she was a minor at death) which has now turned into an IIP (because she has reached 18 and s31 Trustee Act 1925 applies). Does it follow then that any transfer to her now would be an advance under s32 TA 1925, and would be a termination of an IIP, and so reportable in an IHT100 (depending on values)?

Would this trigger an IHT exit charge? No income tax (because it’s hers already), possible CGT from date of death?

Grateful for any thoughts. Thank you.

2

It’s not a qualifying IIP as Y didn’t have the IIP from date of death (therefore cannot be an IPDI). You are therefore in exit charge territory. It may incur a (presumably small or nil) amount of IHT and possibly a filing obligation.

There’s a CGT disposal under s.71 but Y and the trustees could elect for holdover under s.260.

3

I am not sure that I can agree with Andrew that the interest is not an IPDI.

If the grandchild attains 18 within 2 years of death, and s.31 TA 1925 applies in its statutory form, it seems to me that the resulting interest in possession is read back to the date of death which, by virtue of s.144(2) IHTA 1984, is to be treated as an IPDI.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

4

I stand corrected (by a matter of days!)

As the termination of an IPDI in favour of the life tenant, there wouldn’t be any transfer of value, but would be a CGT disposal without holdover.

5

Thank you, both.

In fact, to correct what I said earlier, the grandchild turned 18 in May, which is within 2 years of death.

I think you are correct, therefore, that s144 applies automatically, and that we do in fact (now) have an IPDI.

6

Oddly enough, Christopher, I’m not sure that the gift was a conditional one at all. The provision for holding back payment till the 21st birthday may simply be a non-binding directive.