Life interest to widow in Will, with vested absolute reversionary interests.
One of the reversioners assigns their reversionary interest to a discretionary trust.
Under s81, on the death of the widow, the property in the new trust is treated as still being in the original trust for the purposes of the relevant property regime.
Under s80, where a spouse has a life interest under a trust set up in the Will of the first to die, on the death of the spouse, she/he is treated as the settlor of the trust going forward, except that the 10 year charge dates relate back to the date of death of the first to die.
In our case, is the combined effect of the two sections that the widow is treated as the settlor of the property in the new trust, or the first to die?
S settles property § on an IPDI for widow (W) with remainder interest for Z.
Prior to W’s death Z settles their remainder interest on discretionary trust. The remainder interest is excluded property and so no IHT charges arise at this time. Z is the settlor of the discretionary trust.
On W’s death the originally settled property passes to the discretionary trust settled by Z. There has thus been a transfer between settlements and section 81 (for Chapter III) applies.
Thus, on the death of W any IHT charges (ie 10 year/exit) are based on S’s cumulative total with the property of the discretionary trust being treated as having always been comprised in S’s settlement. S is the settlor.
S 80 presupposes that on termination of the qualifying interest in possession the trust property is then held on a non-qualifying interest in possession trust. That is not the case here as the initial settlement terminates on W’s death.
Thanks for the reply Malcolm. I cannot see why you believe s80 is limited to when the spouse’s IPDI is followed by a non qualifying iip. I believe it applies also if followed by a discretionary trust, or at least that is how I have applied it,
so that it is the spouse’s aggregable total that applies going forward not the original settlor’s. Thus my query about a conflict.
Apologies Simon. Ignore last paragraph. As you say, s80 is not so limited; all that’s necessary is for the property to be held on trusts in which neither spouse possesses a qualifying IIP.
I’m still inclined to the view I expressed above ie widow not the settlor but by no means certain.
This is one of those impossible to answer questions thrown up by the relevant property rules.
Personally, it has always seemed to me that the logical way to read these two sections is to say that s80 overrides s81 for all purposes – in other words that the widow remains the settlor in the present case.
We know, of course, that HMRC regard the 10 year anniversary date as deriving from the original (not the widow) settlor, but I think that, on the wording of the statute, this is probably wrong (not that I would advise anyone to act against HMRC’s interpretation in practice). Can anyone see any reason why HMRC should be right about this?