Related Settlements

I am dealing with two discretionary trusts from an estate (testator died in 2017) where under the terms of the Will one quarter of the residuary estate was left into a Discretionary Trust for the granddaughter, a quarter then went absolutely to the grandson and half to the son. The son varied the Will so as to place £325k of his half share into a Discretionary Trust. So the result is that we have approximately £250k in granddaughter’s Discretionary Trust which she would like to continue and to be loaned out to her. We also now have £325k in the son’s discretionary trust which he would like to continue with and be loaned out to him to assist his inheritance tax planning on his estate. I just want to make sure that these be taxed on the 10 year anniversary as related settlements. The potential beneficiaries of the two trusts are the same so I am of the opinion that they would be even though one has been made via a Deed of Variation by the son. I am not missing anything here am I ?
Many thanks.

Johanna Knott
Cartmell and Co Solicitors

I agree that the two trusts will be related settlements for IHT purposes, but I don’t think they could be treated as one settlement
because they have different settlors for income tax and CGT purposes.

Diana SmartGordons LLP

If the deed of variation included the usual declaration that s.142 IHTA 1984 applies to the variation, then the son’s settlement is deemed to have been made by the deceased at the moment of their death. Accordingly, regardless of the identity of the beneficiaries (unless they are wholly exempt), the testamentary trust and the DoV trust are related settlements and, whilst both are in existence, will share the nil rate band when calculating any exit or periodic charges.

Paul Saunders

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