Amendment to pre 2006 A&M settlement

I’m looking at the tax position of the removal of two beneficiaries from a pre-2006 A&M settlement.

The Settlement was originally created for 6 grandchildren. The original terms created a life interest at the age of 25. There was no modification in the relevant 2006-2008 period and no IIP in existence pre 2006. Therefore from 2008 onwards the trust is within the RP regime.

The eldest two grandchildren are to be removed from the settlement. One is over the age of 25 and therefore has an IIP the other has not. My initial thoughts are as follows:

  • removal of the beneficiary who has not reached the age of 25 is a non-event for tax as at present he is just a named beneficiary on the Trust.
  • the beneficiary who has reached the age of 25 - on the creation of the IIP at age 25 the assets are still RP (the IIP is not a QIIP) so no IHT and no CGT charge as the Trustees retained control of the assets.
  • cessation of the IIP interest in favour of the remaining beneficiaries again does not affect the RP of the trust and the assets remain under the control of the Trustees so no CGT.

So my simple analysis so far suggests that this is a non-event from a tax perspective. Am I missing something?

Analysis of tax seems right but I’m intrigued as to how this is to be achieved within the trustees’ powers (often very narrow in an intended A&M) and the (reformulated) rule in Hastings Bass (so wise to get all affected beneficiaries on board with a written consent under s62 TA 1925). The former risks being void which HMRC must respect whereas the latter is only be voidable and HMRC has no standing to take the point unless someone who has standing does so successfully. Nasty HMRC trick is to decline to be joined and await the outcome but suggest what authorities they would like cited to the Court (litigation on the cheap).

Jack Harper

Thank you Jack. Very useful. I am not producing the amendment so will discuss with the solicitor who is. They are only being excluded as the funds left in the Trust are not significant so the eldest have received a cash lump sum outside of the Trust to enable the funds to be left for the much younger grandchildren.