There was a suggestion that we could use the power of appointment in a Trust Plan to appoint out the Trust Fund to create a Life Interest Trust, the idea being that the Trust could avoid 10 yearly charges.
My question is could that work?
My initial thoughts are that it couldn’t because of the 2006 Act but I would welcome the thoughts of others on this?
Thanks
The 10 year charge is levied on relevant property in the trust immediately before the 10 year charge. Hence, if the trust were to be broken up prior to the 10 year date no charge would arise. Otherwise, if trust property is distributed just prior to the date of an anniversary charge the rate applicable on the anniversary remains unaffected as any amounts subject to an exit charge in the previous 10 years are taken into account [IHTA 1984 s. 66].
Note also s.81 which deals with inter-trust transfers.
Malcolm Finney
I expect Malcolm is right about that but in my interpretation Mia is asking a slightly different question: namely whether appointing the assets of a discretionary trust upon a life interest (i.e. interest-in-possession) would help to mitigate the ten year charge.
If so, I believe that the answer is in normal circumstances “no” for the same reason Mia suggests, namely that post-2006 (and with very limited exceptions) any interest in possession continues to be taxed as a relevant property trust, and therefore suffers the ten year charge.