Charitable Trust and IHT

Trusts Discussion
1

Hi All,

I was hoping someone could assist and shed some guidance on this scenario for me:-

Deceased passed away, estate liable to pay IHT. Res ben’s (who are also exec’s and trustees) entered into a Deed of Variation whereby they proposed to gift a lump sum into a charitable trust, which in essence if successful would result in no IHT on the estate. The clients have sent to me the Deed drafted by another company and I am unsure as to whether the trust would work and whether infact it would be invalid due to uncertainty of objects and whether it is clear who the beneficiaries are, or if the clause is too wide. I wonder if someone could cast their eye on the clause in the Deed and let me know their thoughts as I cannot locate any authority for this. I have looked through the HMRC manual but cannot find anything that clarifies this.

“….a legacy in the sum of £####### and the income payable after the date of this deed (the Trust Fund) to be transferred to the Trustees to be held upon trust for such charitable purposes or charitable bodies as the Trustees may determine, the Trust Fund us to be hereby known as the ########deceased Settlement”.

Many thanks

2

I agree with you. I dont think this works. The Settlement receiving the fund is presumably not registered as a charity and therefore has a gift to a registered charity been made? That said, on double checking IHT exemption may apply to non-registered charities. However, I think HMRC will not gratnt the relief until they are satisfied that the funds are held for charitable purposes.

3

I think the clause might be acceptable if the Settlement benefits UK charities.

See: Withers Trust Corp Ltd v Estate of Hannah Goodwin [2023] EWHC 2783

4

Unless things have changed since I retired 3 years ago, I believe this will work. The legacy is held for charitable purposes, so will attract the exemption.

Simon Northcott

5

The very recent FTT decision Marks TC9253 might be relevant.

6

I have no access to law reports. What did it decide?

Simon Northcott

7

Everyone has free access to Baillie! Marks v Revenue and Customs (INHERITANCE TAX - whether the conditions fulfilled so that the charitable giving condition was met) [2024] UKFTT 706 (TC) (23 July 2024)
and to the National Archives.
https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/706/ukftt_tc_2024_706.pdf
and to the FTT’s own website The Finance & Tax Tribunal
but that isn’t sufficiently up to date.

8

I cannot immediately see how the Mark’s case is relevant to interpreting the wording quoted, so this does not change my view…

Simon Northcott

9

Is not IHT charity relief now limited to charitable bodies within the UK (UK Charities)?

On that basis, as there are no words limiting the gift to UK Charities I suspect HMRC might deny relief under s.23 IHTA.

If still within 2 years of the death, the trustees might consider an appointment, limiting the potential beneficiaries to UK Charities only

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

10

On re-reading the original post, I agree with Paul that the wording may not be sufficient. It is necessary that the gift is held for charitable purposes, defined in s. 2 of the Charities Act

11

I agree with Paul the wording may not be sufficient. It is necessary that the assets and income are held for charitable purposes, as defined by the Charities Act s.2, and given to a Charity, as defined in s.1, not a "charitable institution, which is too wide.

There may be definitions which bring it into the IHT relief, but this needs to be clarified.

Therefore, assuming no appointment has yet been made, the Deed should be amended to make it compliant, and preferably referring to the Charities Act definition of a Charity.

Simon Northcott