I have a DT will trust that has resettled part of the trust fund on a similar DT. The trustees are slightly different, the classes of beneficiaries are more restrictive and the investments are separate.
are they treated as related settlements for IHT purposes for the TYA and exit charges but separate for income tax purposes?
For IHT it would seem s.81 IHTA applies, so the 2 trusts are treated as one for TYA and exit charges.
This is not without difficulty for the respective trustees. Unless the resettlement documentation otherwise provides, the original trustees will be liable for any IHT without access to the other trust fund. The risk of this was made
clear for CGT in Rome v Edwards where the UK resident head trustees had to pay the tax on gains in a Cayman Islands separate fund with NR trustees. As far as I know there is no decided case about whether the head trustees could claim a contribution in equity from the other trustees, who might otherwise be duty bound to resist.
HMRC won’t care if they are paid in full but if not I would expect them to maintain their right of recourse to either fund for the full amount. S.201 is silent on who are “the trustees” where s.81 has taken effect before the liability crystallised.
Related settlements are defined in s.62. Their subsistence is an essential component of RPT charges. The original trust may have been a related settlement of another—not stated. The resettled trust is not “related” to it as such per s.62 but the effect of s.81 is that the combined values of the 2 trust funds will feed into the TYA and exit charges. If the original trust was a related settlement s.81 will treat the combined funds as contained in that related settlement. However the related settlement rules only apply to include as a component of TYA and exit charges the value of relevant property in related settlements immediately after they were created. So that means the historic value of the head trust immediately after it was created I.e. before the resettlement and this is a fixed amount once and for all. As I say the OP does not state whether the original trust was one of two or more related settlements.
Jack Harper