End of accumulation period in a discretionary trust

The 21 year accumulation period within a discretionary trust, settled in 2000, has just come to an end. For the purposes of IHT, presumably the trust is still a relevant property trust even though it has effectively become an IIP? The fact that it was originally settled in 2000 doesn’t make it a QIIP?

It’s still a Relevant Property Trust.

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To the extent that any beneficiaries had an IIP in a share of the fund before the relevant date in 2008 then their “share” will be a QIIP and the trust will be mixed, but if not, then as Paul has stated, it will be relevant property regardless that the beneficiaries may now have IIPs. Presumably IHT returns were completed and submitted in 2010 and 2020.

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Thank you Maxine. Yes IHT returns were completed for 2010 and 2020 - it was a full-blown discretionary trust prior to 2021

Just because the accumulation period has ended, it does not mean that the trust is now an IIP. If it is a “full-blown discretionary trust”, it is most likely the case that the trustees continue to have discretion as to which beneficiaries receive what income (and in what manner); it is just that the trustees must distribute the income and no longer have a power accumulate it. From the point of view of timing, the trustees ought to distribute the income within a reasonable time - whatever is reasonable in the circumstances. There will no doubt be a grey area between “still deliberating how to distribute the income” and “accumulating the income and deciding to distribute that accumulated income at a later date”.

It would only be an IIP to the extent that there are beneficiaries who are, for the time being, entitled to a specified share of the income as it arises. Most discretionary trusts from before 6 April 2010 were not drawn up that way, so it is worth double-checking what your trust says.

However, some trusts are drafted with only a discretionary power of appointment in respect of the trust fund, but no discretionary power to distribute the income “as the trustees in their absolute discretion think fit”. In trusts like that, the default beneficiaries often (but not always) did have an IIP from the start - in fact, typically they had an “absolute defeasible interest” which, in the circumstances, tended to give them an IIP, unless or until the power of appointment was exercise to change the position. Many life policy trusts pre FA2006 were drafted like this.

Paul Davidoff
New Quadrant

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Thanks very much Paul