The settlor created a Discretionary Trust 5 years ago. He would now like to “carve out” a new trust to be held on a life interest trust for one of the potential beneficiaries. Using the powers granted under the Discretionary Trust is it possible for the trust fund to be transferred in whole to the trustees of the “new trust” to be held upon its terms without the value coming back into the estate of the settlor for IHT. Please can you advise if there are any other points to consider in relation to the resettlement. Many thanks
The actual wording of the DT is crucial but most DTs would facilitate your plan. There should be no charge to IHT as the trust is and remains a RPT: ss65(1) and 81 IHTA. The date of commencement for 10 year anniversaries is unchanged.
CGT if relevant is more difficult. To avoid a disposal you would need to avoid creating a separate settlement. Essentially a matter of drafting but well understood methodology. See CG38700P and following. This is important because the effect of s81 IHTA is to nullify a chargeable transfer so s260 TCGA would not allow hold-over unless the asset(s) were business assets within s 165. Plus hold-over has conditions attached or potential consequences e.g. trustees becoming non-resident and s80 applying.
Jack Harper
This is very helpful. Thank you!