May I please check my understanding of the circumstances as described below. I have outlined just the basic details for my enquiry.
Background: Whilst dealing with LPAs, I came across 2 lifetime trusts set up by a client and his wife in respect of houses purchased by way of mortgage for their two sons. The idea was to protect these assets for their sons. In each trust, the ‘trust’ owns the houses, are the mortgagor and pay the same. These amounts are contemporaneously paid back into the trust by the relevant son (so no income tax liability).
Settlors – Mum and Dad
2 Discretionary Trusts set up for the purchase of their sons’ houses in 2002 (some cash and mortgage).
Trustees – Mum and Dad and 1 other (their accountant) all still alive.
Beneficiaries of each trust– their two sons and remoter issue etc etc. One son and family living in each house.
I noticed the 20th anniversary was upcoming and enquired, inter alia, as to the 10 year charge. They were not aware of any charges due or that had been paid previously. On my suggestion, they asked the accountant (one of the trustees) about this. His response was to say the 10 year charge did not apply as the trusts were set up before 2006.
The understanding I have, which is what I am asking to be confirmed, is that prior to the Finance Act 2006 IIP trusts were exempt from periodic charges as different rules applied. This was changed by the aforementioned act and bought them into line generally with discretionary trusts, which always were subject to the periodic charges. Therefore, my conclusion that these trusts are liable for the periodic charges and always have been.
Firstly, I would be very grateful if you could confirm this is correct, so I can advise on appropriate action. Secondly, may I ask, when valuing the trust property for charging purposes, will this be net of any mortgage owing?
Thank you in advance.