HMRC do provide in 37886 three examples of a “minor” variation that would vary the the terms of a trust without creating a separate settlement, and arguably the one about changing admin powers is not technically a variation of a disposition made by the will within s.142/s.62(6).
CG37886 should not be read in isolation because s.68C TCGA which defines the settlor of a variation of, or by transfer to, a different pre-existing settlement or which newly creates a settlement (subsections (5) and (6)) only apply if reading back is triggered by the statement in s.62(7) so that s.62(6) applies.
In such cases s.68C requires one to ascertain whether property or any derivation of it “moves”, to use a neutral term, to—and here I quote—“another” settlement. Even where the section does not apply that analysis of the effect of a variation still needs to be made. This is because underpinning all of this is the rigmarole of “separate settlements”. This really requires one to read the whole of CG37800C but especially 37830
citing the key case law.
These cases are just some of the many that had to be resolved by the Court over many years after 1965, at enormous expense to private trust funds, in order to clarify fundamental aspects of CGT on settled property which the legislature was too lazy, stupid or callously cynical to obviate by enacting better tax law based on a better understanding of property law and jurisprudence. Of course nevertheless, “due process was followed”.
The variation conundra are really a sideshow compared with the bigger (because more commonly encountered) picture. When trustees exercise a power of appointment or advancement to vary or create new trusts, do they make a disposal of chargeable trust assets, with the result that other trustees become “absolutely entitled” to them or, rather charmingly, do they themselves do so in the separate capacity as trustees of a different trust? The cited leading cases, like a dentist pulling teeth seriatim, together eventually painted the picture of a “separate settlement”. It took a lot of tries to pin the tail on the donkey. (Hold-over relief may assist in some cases).
The horrendous outcome of Roome v Edwards was this: because the division of a trust into a UK fund and Cayman Islands fund was held to not constitute separate settlements the UK trustees were liable to pay CGT on gains arising in the CI fund to which they had no access in trust law. Doh!!! Just another excremental day in the life of a trustee, paid or unpaid.
The case law then revealed one of its typical asinine fatuities: it all depends on the drafting, both of the original trusts and their selected mode of alteration. If you get the drafting right you can ensure that the fiscal outcome is either that there is created a separate settlement or that there is not.
Your example is of standard residuary trust but the proposal is apparently not that the trustees should alter it by exercising a power of theirs but apparently that a beneficiary should somehow achieve that by unspecified means. I have to pause there and say that a s.142 variation only has the desired fiscal outcome if the methodology employed is effective in trust law. That all the living dramatis personae of a given trust would like to change something is not always feasible, which is why we have s.57 TA 1925 and the VTA 1958.
So I can’t answer the question posed other than by the foregoing, hopefully helpful and erudite, waffle because:
(a) it all depends on the drafting; but
(b) if you get it right you can be reasonably certain to come up with the answer you first thought of and dodge the elephant traps.
Jack Harper