This is a bit complex, so please bear with me… I advise the trustees of a trust with multiple (20+) qualifying IIPs and a few non-qualifying IIPs. The fund is split in two halves:
A. Life interests were appointed pre-2006 in favour of three brothers, with their wives in succession, and then to children for life on the death of each brother and his spouse. All brothers and one widow have since died, with her share then held on non-qualifying IIPs to their three children, in accordance with the relevant deed.
B. As at 2 October 2008 (ie, just before the 6 October deadline for creating TSIs), TSIs were created from this fund for a large number of beneficiaries (great grandchildren) with a few qualifying IIPs for grandchildren remaining in place from their appointment in 2002.
In 2008, one great grandchild’s share was appointed to his siblings, which terminated his TSI creating a non-qualifying IIP of that share split between the two siblings. The value of his share at the time of the 2008 appointment is unknown and would require retrospective property and portfolio valuations.
In 2015, the appointment of one grandchild’s share was revoked and reappointed on slightly different terms, but still initially to the same grandchild. There is some doubt as to whether this did terminate the original qualifying IIP in her favour, but for the purposes of this query please assume it did. The value of her share at the time of the 2015 appointment is unknown as above.
An asset of Fund A has now been sold and the proceeds are to be distributed amongst the life tenants of that fund. For the two surviving widows, there is no IHT issue as their interests are aggregable with their own estates. For the children with the IIP of the third share of that fund, however, an exit charge will be due. The base value of their share of Fund A is well known, as the trustees reported and paid IHT on their mother’s share at the time of her death in 2016.
The question is whether the two lifetime terminated TSIs of Fund B have any association for IHT purposes with the termination on death of the qualifying IIP of Fund A (or/and with each other) and, if so, how, and how would that be reported? Our thoughts are that each terminated interest is an entirely separate settlement for IHT purposes, but we have not found any commentary in support.
Thank you for reading and for your interest. All comments appreciated!
Adams & Remers LLP