I don’t follow this. If the settlor made a CLT originally it would have been a very strange kind of DGT, even one incompetently designed or drafted. The entire basis for such a trust was to ensure that the settlor did not make a transfer of value and, just as importantly, that they did not make a GROB. HMRC perhaps surprisingly accepted that the two separate funds, properly drafted, did not involve a reservation, though the settlor was the settlor of both funds. There was no original TOV because the settlor’s fund was held on a bare trust for the settlor. The settlement anti-avoidance legislation was not engaged because the investment growth in the beneficiaries’ fund was not income but quasi-income taxed under the chargeable events code. The plan encouraged settlors to settle more than they were otherwise prepared to give away.
It allowed the bond, a life policy with a single premium, or more usually a number of such policies, to be surrendered utilising the 5% pa facility, tax-free because treated as a return of capital i.e. the premium.
The beneficiaries’ trust was usually before March 22 2006 a qualifying IIP trust. That might not always be clear and either mistakes in the drafting could be made or its consequences misunderstood or unintended Qualifying IIP or not?. It could have been a bare trust or a deliberate DT but that was not usual. After that date any new beneficiaries’ trust had to be a RPT unless it was a bare trust. Existing QIIP trusts were not automatically converted to RPTs. That put new settlors off unless they aimed to game the RPT rules e.g. 0% rate in first 10 years where the settlor had no prior cumulation and 0% even later depending on investment performance.
Jack Harper