Ihsan pointedly did not mention a s.142 variation. I brought it up myself because s.142(6) deals with the very issue he raised.
What can be read into that subsection? At the very least that the draftsman and those instructing him anticipated that there might otherwise be a problem, which would have an impact on the short time limit as it runs from the date of death. It is not extended, as such limits often are, to run alternatively from the date the PRs first begin to act. This is gratifying as a relatively rare occasion of such anticipatory vision being incorporated into a statute.
Despite my inveterate lampooning of the shadowy personages mentioned above, I do not accuse them of stupidity only of normally reckless unconcern for the consequences of their decisions. I suggest that there was a worry on their part that if they did not deal with the point the matter would have been at the very least uncertain, leading to controversy and litigation. And I applaud them for not leaving the point to HMRC’s legislating by proclamation with only JR as a remedy.
S.142 creates a fiction for IHT purposes (mirrored by s.62(9) TCGA for CGT). This, like other deeming provisions, have to operate in the real world. It is for example possible to vary the destination of an asset which has in fact already been sold by the original legatee. The real world consequences including those for IHT and CGT of that actual disposal are unaffected by the reading back under s.142. True to form HMRC ignore the real world when it does not suit them: IHTM35042 (variation of the interest of a deceased life tenant), crying out for a Court challenge.
The real world includes the general law. I do not agree that any lawyer could prudently rely on this being “overlooked/ignored in practice” and his insurers might be unimpressed if he did. Anyway I suspect that HMRC only “accept” such practice under s.142 because subsection (6) directs them to. Paul does not seem to challenge the chose in action doctrine in principle and who in Ihsan’s position is going to rely just on HMRC not raising the issue if it suits them?
I said that I suspect that the real world property law analysis is that the trust is completely constituted by reason of the thing in action accruing to the trustees on the date of death. And if the settled property is a specific gift the doctrine of relation back will apply to treat the trustees’ past actions in regard to the chose as if in regard to the asset, if but only if the executors do not sell it when any money in lieu can be substituted.
The trust instrument may authorise their action but if it does not the trustees have to fall back on the law. As ever here we have no sight of the trust provisions. Interpretation is always key. Often trustees are given all the (administrative) powers of a beneficial owner but the wording matters. Para 4.2 of the STEP standard is one such but the used of “disposition” is gratuitously confusing, hopefully qualified by the heading “Management”.
The fundamental question is whether the trustees’ action would be void, potentially disastrous if not diagnosed for some time (though less so if never!); or merely voidable. I regret in the absence of precedent I can only guess.
For IHT if the trustees are ultimately entitled to a specific asset then they have power to appoint the chose in action immediately after death and it will at general law carry with it the asset in kind or money substitute. Unless the trust instrument prohibits. So a PET by the LT
on the value of the chose but likely HMRC will accept no more than the asset’s value at death. It would be open to them to argue that the valuation at a later date when the asset is in fact no longer required for administration.
For CGT useful insights into HMRC practice are at CG31900C on non-retrospective variations. It is clear that HMRC do not overlook the chose in action point. Plainly the chose was not owned by the deceased even if the asset to which it ultimately grants ownership was so owned. The difference here is the diversion of the chose and eventually the asset (where the asset is still in law vested in the PRs) to a trust beneficiary is not effected by a variation but by the positive action of the trustees. HMRC are engaged about how far the acquisition cost will be OMV at death. CG31949 applies CG3280 where a trust is bypassed (“deleted” say HMRC!) and there is a rather complicated combination of a transfer by the PRs and assignment by the trustees. This results in some gain or loss by the PRs. Logically this effect will be minimised the nearer to the date of death the appointment is made because there will be little change in value.
The analysis here is plainly non-statutory and in its complexity is as speculative as much of the theology of Aquinas or his equivalent in other faiths. But it is also clear that HMRC have indeed given thought to the matter so it would be wrong to assume it has been overlooked or accepted that the appointee will take the asset at OMV at the date of death. HMRC could themselves argue that the relation back doctrine vests the asset in the trustees retrospectively or accept the taxpayer so arguing if it was favourable.
Where the trust is over residue the issue is even more obscure. The argument, that for CGT the asset must be regarded as passing through the trustees hands so they take as legatees and the beneficiary appointee does not, is much less cogent especially if the interval before ascertainment is long and the change in value since death of the appropriated assets is substantial. The general law does not operate a doctrine of relation back to a residuary gift so there is no retrospective vesting of ownership; it cannot pass until appropriation or, at the earliest, prior ascertainment of reside in fact.
For IHT however I would still strongly argue that the chargeable amount under s.52 IHTA and so the TOV of the PET is the value of what the trustees appoint on the date they appoint it.
However in the appointment document the trustees can only appoint the chose if that is all they have at the time (with undertakings for such further assurance as to the actual assets as may be within their power).
Jack Harper