Capital appointment from A&M trust

I would be grateful for guidance in respect of the following scenario.

The vesting date under an A&M Trust created in the mid-1980s is the date the youngest of the two beneficiaries attains 50, which is mid-2022. The trust was not adapted after the FA 2006 Trust changes and fell into the relevant property regime by default.

The Trust Deed states that trust income shall be paid to the beneficiary until the vesting date which suggests that the beneficiaries had pre-2006 qualifying interests in possession.

The Trustees will appoint the trust assets to the beneficiaries this year. The assets are trading company shares so are covered by Business Property Relief.

Are the appointments of capital terminations of life interests, as well as chargeable events for exit charge purposes?

If one of beneficiaries decides to gift his shares to the other shortly after the appointment, can he claim Business Property Relief on the basis of his pre-2006 qualifying interest in possession or does he have own the shares personally for 2 years to qualify for the relief?

Many thanks

Hi James,

Thinking outside the box here -

I’d suggest to qualify as an accumulation and maintenance settlement prior to 22 March 2006 the vesting age would need to be maximum 25.

On that basis - we assume the deed says 50, then you don’t have an A&M trust to begin with?

If that’s the case you have a qualifying IIP?

Interested on anyones else’s thoughts on this.


For IHT the appointments will be RPT exit charges which you say will be covered by BPR. The appointees will have to wait 2 years before a subsequent CLT or PET will attract BPR but BPR would apply if they were to die meanwhile as it would be a “successive transfer” under s109.

CGT is different and it does not follow that the disposal by the trustees will be tax-free. The appointments will be occasions of absolute entitlement under s71 TCGA and deemed disposals of the shares. Hold over relief is not available under s260 as they are not chargeable transfers or otherwise covered. Such relief may be available under Sch 7 but trustees have to fulfil certain voting requirements for the company to be their “personal company” (and there are certain post event conditions to avoid clawback).

I have certainly come across situations where the CGT position was so awful that the settlement was kept on foot but powers of appointment used to create separate funds within in it (reasonable but nor perfect segregation). The death of a life tenant provides a tax-free uplift. If the life tenant wishes to benefit another person who is a beneficiary or can be added it may be possible to use powers of appointment to completely substitute that other person and their family as beneficiaries of the life tenant’s fund without a CGT disposal until an actual sale and for IHT with BPR running on uninterrupted. The termination of a life interest in a continuing settlement is a non-event for both CGT and for IHT in an RPT.

Jack Harper

IHT 1984 s260 applies to an appointment out of an RPT (ie exit charge) under which a capital gain under TCGA 1992 s71 arises.

The fact that 100% IHT BPR applies doesn’t preclude the transfer constituting
“a chargeable transfer within the meaning of IHTA 1984” for s260 purposes.

Malcolm Finney

Curious that this phenomenon is not mentioned at CG67030P. Chapter and verse statutory analysis Malcolm please? Is a transfer of value with the value transferred by it reduced by 100% a chargeable transfer within s2 and crucially here s2(3) IHTA?

Jack Harper

Gift by individual
A chargeable transfer is a transfer of value and can only be made by an individual [IHTA 1984 s2(1)]. A transfer of value “… is a disposition … as a result of which the value of his estate … is less than it would be but for the disposition…”.

If the gift of an asset by an individual (not a PET) will result in a diminution of the individual’s estate it qualifies as a transfer of value and hence a chargeable transfer. IHTA 1984 s 260(2)(a) applies and hold-over is in point.

If the asset qualifies for BPR for IHT (eg 100%) this simply affects the value or quantum of the disposition made but the gift is still chargeable to IHT. It does not preclude hold-over relief under s260 from applying.

S260 is about chargeability not whether IHT is actually payable.

Exit charge
“Chargeable transfers” are defined to include “…references to occasions on which tax is chargeable under Chapter III of Part III…” [IHTA 1984 s2(3)].

This would include an exit charge.

In the above post any exit charge would be reduced to nil assuming 100% BPR.

TCGA 1992 s260(2)(a) is satisfied and hold over relief applies.

As stated above, s260 requires chargeability to IHT not actual payment.

Jack, you ask:
Is a transfer of value with the value transferred by it reduced by 100% a chargeable transfer within s2 and crucially here s2(3) IHTA?

In my view, “yes”.

Malcolm Finney

1 Like


A transfer of value “…is a disposition …as a result of which the value of his estate …after the disposition is less than it would be …but for the disposition…”. [IHTA 1984 s3(1)].

Whether a reduction occurs is measured ignoring BPR. BPR is in point only when ascertaining the resultant IHT charge.

Malcolm Finney

I do not dispute that Malcolm is right. I can make a case out for it but as a lawyer I can make a case out for anything except, perhaps, 2+2=5. The learned authors of Chamberlain and Whitehouse agree with Malcolm but only in a brief footnote (n94 p589 4th edition). It is not clear whether their view is derived directly from actual practising experience.

As an adviser I ideally want certainty for my client. I might be convinced by a spot on HMRC public domain confirmation. I can’t find one. Can anyone? If not, I would be contacting HMRC for a case-specific ruling that is JR bankable. Coming from a person professionally instructed they cannot dismiss the request as hypothetical. They could if I asked them and, even if they responded, no one could rely definitively on the answer.

TCGA 1992 is a consolidating statute (so the antecedent of s260 is even older) and escaped the Rewrite. There was an earlier controversy over s260: many did not appreciate how narrow was its coverage of deemed disposals within A&M trusts, a view which HMRC supported but not in advance. It also reflects HMRC compartmentalisation (rife in parts of the profession too). The HMRC person processing the CGT claim is likely to have no working knowledge of IHT: CG67033 directs contact be made with IHT Technical. I once attended a meeting on my own with 7 HMRC specialists each one the expert on a particular aspect of the settlements legislation. This is a viable business model and HMRC’s successful traditional approach but it can suffer from tunnel vision. I would prefer to be armed with the official IHT view before my clients pressed the button.

I regret both that we cannot make our statutes clearer and that the CG manual is not explicit on such a key point. I regret too that we have to be resorting to cumbersome JR protection but we often nowadays have no choice but to follow the fiscal White Rabbit down into the Wonderland burrow of legitimate expectations.

Jack Harper

I hadn’t checked out any HMRC manual (or indeed any other source) before responding to the original poster and Jack’s follow-on question. I’ve just had a quick look at the IHT/CGT Manuals but, like Jack, can find nothing on TCGA 1992 s260/IHT BPR which does seem a bit strange.

In the dim distant past I must have had to investigate the matter. Certainly, I have always understood that in the above circumstances hold-over under relief under s260 was possible when combined with IHT BPR.

Malcolm Finney

I too am convinced that there is authority for holdover relief being available even where no IHT is actually payable, particularly where the value is below the NRB.

The following is a quote from the HMRC guide HS295 to the relief:

“Cases where there is no liability to Inheritance Tax, because the value transferred is within the zero-rated band, qualify for Hold-over relief.”

Although this does not refer to BPR, I feel this must mean that Hold-over relief would be available if there is no IHT due because the value of the chargeable transfer is reduced as a result of of BPR.

Diana Smart

Gordons LLP

No. It is a chargeable transfer but at the nil rate.

Jack Harper

But isn’t that the situation when BPR applies? BPR operates by reducing the value transferred, so that if BPR applies at 100% (or 50% on a market value not exceeding £650K) the value transferred falls within the nil rate band.

I am not sure whether Diana is agreeing with Malcolm Finney or not so here is my step by step analysis reiterating his view. I agree that his view is the received wisdom; my concern is that nowhere does HMRC publicly and categorically endorse it.

1 Relief from CGT is given to disposals not at arm’s length under s260 TCGA. The principal category is in s260(2)(a): a chargeable transfer for IHT which is not a PET but includes exceptionally an exempt transfer within the annual exemption
2 A chargeable transfer is a transfer of value by an individual or equivalent RPT event
3 A transfer of value is, in short, a disposition reducing the value of his/her estate or of RPT property
4 BPR is a valuation relief. Tax is charged on the value transferred. BPR reduces that value by 100% or 50%. Even at the 100% rate it does not cause it to cease to be a transfer of value and so not a chargeable transfer either. It is not like the reliefs in ss10-17 IHTA which are by statute not transfers of value at all (if they would be otherwise) and so are clearly outside s260.
5 The rate at which a chargeable transfer is taxed depends on a number of factors but significantly the amount of value transferred. If 100% BPR reduces that to nil then there is no actual tax charge on the transfer but it remains a chargeable transfer in principle because it remains a transfer of value in principle so it is eligible for s260 relief in principle.
6 s260(2) contains other categories of transfer that are specifically accorded relief which would not otherwise do so under the general rule because they are either exempt or specially favoured RPT events
7 Still excluded from relief is an RPT event within 3 months of a settlement commencing or a 10 year anniversary because of s65(4) IHTA removing the charge under s65(1), which presumably means it is not equivalent to a chargeable transfer or a transfer of value. The similar outcome (the “Frankland trap”) was reversed in s144(1)(b) for deaths on or after 10 December 2014 but only applies for IHT purposes; if the event is ignored for IHT but is a disposal for CGT then s65(4) will still preclude s260 relief.

This remains an opinion though one which is espoused by numerous commentators, some of them luminaries. You can tease out this analysis from the Manuals but there is no specific confirmation there (or elsewhere). If it were obvious this thread would not have developed. We used to cheerfully advise our clients to act on such opinions without more but I believe their reasonable expectations now in general require us to ascertain whether HMRC agree if that is practicable and cost-effective unless instructed to the contrary.

Jack Harper

Diana states in her first post “I too am convinced that there is authority for holdover relief being available even where no IHT is actually payable, particularly where the value is below the NRB” . This I think makes it clear that Diana is in agreement with my earlier comments. No doubt Diana will respond.

The more detailed quote provided by Diana in her first post provides:

" Category 4: Chargeable transfers for Inheritance Tax purposes
Hold-over Relief is available where the disposal is a chargeable transfer for Inheritance Tax purposes, but not a Potentially Exempt Transfer (PET).
The most common example of a PET is a gift by an individual to another individual.

The main examples of a lifetime chargeable transfer are when an individual:

  • gives an asset to the trustees of a trust (other than a disabled trust)
  • becomes entitled to the property of a relevant property trust

Cases with no liability to Inheritance Tax (because the value transferred is within the zero rate band) qualify for Hold-over Relief".

I would suggest that the last two lines refer to, for example, the settlement of shares by an individual on trust, say, ÂŁ300k market value and initial cost, say, ÂŁ200k giving rise to a capital gain of ÂŁ100k.

Assume no earlier lifetime transfers. There would thus be a chargeable lifetime transfer of £300k for IHT which would fall within the individual’s nil rate band and thus chargeable, albeit at the nil rate (ie 0%). As s260(2)(a) is satisfied (ie the disposal of the shares is a chargeable transfer for IHTA 1984 purposes) hold-over relief is available for the £100k capital gain despite no actual IHT charge arising.

I agree with Jack’s added comments in point 7 of his post, namely, no CGT hold-over relief (TCGA 1992 s260) applies where any transfer out of the trust occurs within three months of any ten year charge or within three months of the trust’s commencement because of the need for such transfers to be “chargeable” which under they are not [IHTA 1984 ss2(3) and 65(1) and (4)].

IHTA 1984 s144 which applies automatically (at least for IHT) similarly prevents hold-over relief for CGT (TCGA 1992 s260) from applying (see s144(2)).

Malcolm Finney

Thank you to both Jack and Malcolm for your responses to my post. I perhaps have a tendency to be too brief in my messages to this forum, but for clarification confirm that I agree entirely with your analyses.

I suspect the only area where I may have a slightly different opinion is the extent to which I am reassured by the passage I quoted from the HMRC Guide. It is a shame that there is no express guidance on this specific point, but I imagine that in most cases where IHT BPR applies, holdover relief would in any event be available under s165 TCGA, so the issue doesn’t come up that often.

Diana Smart
Gordons LLP

I think Diana is right that s165 will often assist but the problem with trustees’ disposals is the definition of “personal company” is more difficult to fulfil and finesse than for an individual shareholder

Jack Harper

Many thanks to everyone for their help and guidance.