Section 5 of the IHTA 1984 defines estate as including:
" (2) A person who has a general power which enables him, or would if he were sui juris enable him, to dispose of any property other than settled property, or to charge money on any property other than settled property, shall be treated as beneficially entitled to the property or money; and for this purpose “general power” means a power or authority enabling the person by whom it is exercisable to appoint or dispose of property as he thinks fit." This definition broadly follows the definition in estate duty days but I have never come across it in practice. Has anyone else? My question is largely theoretical but, in discussions some time ago with an investment adviser, he mentioned that his customers give him a general power of attorney. It seems to me that such a power permits the donee to “dispose of any property” and thus contains the hidden danger that the donee’s estate would be liable for IHT on property which is in no meaningful sense his. Am I missing something here? Does it mean that the property falls within the estates of both the donor and donee of the power? Adopting the principle of a “royal lives clause”, the problem, if such it be, could be avoided by conferring a power of attorney, excluding power to dispose of any property in favour of any issue of the King, so that the power is not “general”.
A person who gives another a power of attorney is regarded as personally making any dispositions which are made by the attorney in lawful operations by him pursuant to the power.
The power in s5(2) IHTA is not such a power. It is an equitable property right conferred on another person to deal with the property of the grantor. It excludes a right over settled property where it is far more commonly found. It is archaic and a relic of a bygone age where married women were chattels, trial by battle was an alternative to a trial, entails could be granted and barred, and droit de seigneur was not justiciable by the SRA.
HMRC refer to it in IHTM4034-5, 17052, and 20170. The only commonly encountered example is as regards pension benefits at 17052. It is a hangover from Estate Duty days and is anti- avoidance, preventing the grantee from claiming that he does not have beneficial ownership of property which the grantor has legally authorised him to dispose of to others or, crucially, to himself. The latter option is essential or it will not be a general power but rather a special power. A power to direct the destination of property to one or more persons other than the grantee has only a nominal value or none at all. If the grantee is free however to appoint to himself its value is tantamount to that of the property in question over which it subsists.
Jack Harper
A general power of this kind was more often found in old wills which create a life intertest and give the life tenant power by will to appoint the interest in remainder to whosoever they choose. It probably only has any significant impact where the deceased died before 13 November 1974, leaving the surviving spouse a life interest as a result of Schedule 6, para 2, IHTA 1984.
As Jack suggests, such wills tend to be historic situations so fairly rare nowadays.
Probably, as Jack also identifies, nowadays the situation may more frequently arise in respect of pension pots, rather than wills
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Many thanks to you both.