Commencement date of trust for IHT

Mr X died in in 2001. Under his Will there was an NRBDT and residue passed to Mrs X absolutely.

Within 2 years Mrs X varied her absolute interest in residue so it passed into a flexible life interest trust (the FLIT) of which she was the life tenant.

In November 2003 son SX created a discretionary trust with an initial trust fund of £10. Mrs X is a beneficiary.

In April 2004 the trustees of the FLIT advanced assets equal to the nil rate band to the new SX discretionary trust (SXDT).

I know this planning was possible before the GROB rules changed in 2006 but I have not before had to consider the consequences for the purposes of IHT reporting. I am also not sure why funds were advanced from the FLIT to the SXDT, or indeed whether that affects anything. I suspect not.

I am trying to decide what is the commencement date in relation to the funds advanced from the FLIT to the SXDT, i.e. when the first 10 year charge should have happened.

The DOV reads back to the Will and to the date of death, and I think this is the correct date for the purposes of the 10 year charge, although the assets will clearly not have been relevant property throughout the 10 year period. Do others agree?

I am aware that s 80 IHTA would have the effect that the assets are not treated as settled until the date of the advancement to the SXDT, and also that Mrs X will be treated as the settlor for IHT purposes, but this section does not affect the commencement date for the purposes of the 10 year charge. It does, I believe, prevent the SXDT (in relation to the advanced assets) and the NRBDT under the Will from being related settlements.

S 81 IHTA provides that when property from one settlement becomes comprised in another it is treated as still being comprised in the first settlement, so this would seem to suggest that the date of creation of the SXDT is irrelevant for this purpose.

I am aware that this is a settlor interested trust for income tax purposes.

Diana Smart
Gordons LLP

IHTM42221 (which links to IHTM42231) provides statutory references and appears to support your view Diana.

Richard Whitaker

I believe you are correct and the anniversary runs from the death. s.61(2) disapplies s.80 for the purpose of identifying the 10 year anniversary but the DoV remains. As you state, s.81 makes the fact the settlement has changed irrelevant.

I’m afraid I have no idea what would be gained by advancing the assets over.

Andrew Goodman
Osborne Clarke LLP