Business Property Relief - Appointment out of TSI

I have a TSI which was created pre October 2008 (post April 2006) - whereby an existing IP Trust was appointed out onto TSI’s for two separate beneficiaries. The Trusts hold assets which qualify for BPR. The Trustees have a power of appointment to resettle on new trusts which they want to do. The aim is to resettle one of the trusts on a discretionary trust for a beneficiary and his family. I am uncertain as whether the IHT charge that would arise on resettlement would qualify for BPR - the settlor will be the original settlor of the IP/TSI due to the special power of appointment - I understand that the BPR attaches to the life tenant. Will the BPR fail on the resettlement as it attaches to the LT not the trustees? If it does fail is there anyway around this? The LT needs to be a beneficiary of the new trust.

Mahendree Naidoo
Kingston Smith

The resettlement by the LT will be a chargeable transfer based upon the transfer of value from his/her estate (using the LT’s nil rate band but with tax (if any) payable by the trust).
As the chargeable transfer will be by reference to the LT’s estate, entitlement to BPR will flow from the LT’s circumstances (eg if the business property is a building used in the LT’s trade, then the rate of BPR would be 50%).
You will appreciate that the resettlement will in a relevant property trust with ten year anniversaries calculated from the original date of the settlement, so care should be taken if the next ten year anniversary is within two years, as the trustees of the RPT will not qualify for BPR based upon their period of ownership.

Carlton Collister
landtax llp