IIP Trust - Payment of Capital?


Can I check my understanding of a trust I am dealing with?

Husband dies October 2020 leaving residuary estate into an interest in possession trust. Life tenant is wife but there is an overriding power of appointment of capital to all beneficiaries.

The trust itself is an immediate post death interest. Therefore no inheritance tax to pay on creation of the trust as not part of the relevant property regime and spouse exemption in any event.

The trust fund is approximately £850k (£530k cash and £325k property).

We are looking at doing two appointments of capital, both around £30k; one to wife and one to daughter.

Are there any tax consequences I need to consider here?


My understanding is the 60k is not a PET or CLT.

However the 60k is aggregated back into the estate on the final death in terms of IHT - tax fiction as the estate potentially pays IHT on the 60k thats not in the estate.

Happy to be corrected as many practitioners view is its a PET which is true with a qualifying IIP.

Intersted in any other members views.

Richard Bishop

I’d take a different view:

  • the appointment to the daughter is a deemed PET by the widow (s.52(1))
  • the appointment to the widow is not as there is no transfer of value, the sum remains in her estate for IHT purposes.

Also, both distributions would be disposals for CGT if something other than cash.

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On the basis that the life interest is an IPDI for IHT purposes:

The advance to the widow has no IHT consequences. However, it may impact the apportionment of IHT on the widow’s death as it reduces the value of the trust fund by £30k and increases the widow’s estate by £30k.

The advance to the daughter, though, will be a PET by the widow. If she intends that any of her annual IHT allowance be put against the value of the PET, she will need to transfer that to the trustees. This used to be done using Form 222, which had to be submitted to HMRC within 6 months of the date of the advance. I believe the allowance may now be transferred without the involvement of HMRC – see IHTM16083

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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