I am preparing a Will for a client and the relevant clause reads:-
(d) as to 26% for X upon attaining the age of 21 years absolutely.
X is currently a minor and not a child of the Testatrix.
I am being asked whether this will be a Relevant Property Trust until the beneficiary attains the age of 18 (or 21).
My understanding is that this is a bare trust, as the beneficiary is absolutely entitled to the capital and income, but not until they attain the age of 21, but I am now doubting myself. The hope is, of course, that X will be over 18 (and 21) by the time she dies, but in case they are not, I want to make sure I understand the position correctly.
It’s an Age 18-25 Trust (s.71D IHTA).
It’s not a bare trust as the beneficiary is only entitled to income from 18 (by default) and only has a right to capital if they reach 21. As they aren’t entitled to capital unless they reach 21 they can’t be said to be absolutely entitled to it until then.
As a result, it’s in the relevant property regime but subject to special rules. There will be an exit charge if the trust vests at 21 (i.e. isn’t advanced earlier under s.32) but (if I recall correctly) the completed quarters are only counted from when they turned 18). The maximum exit charge would therefore be 1.8% at age 21.
I agree with Malcolm – unless X is a child of the testator the trust will be within the IHT relevant property regime, with X becoming entitled to income at age 18 and capital at age 21.
If X is a child of the testator (which is not stated in the initial posting), then I agree with Andrew’s analysis of the situation.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
A bare trust is not a settlement for IHT purposes. A. bare trust exists if a beneficiary has an immediate right to both capital and income which seems not to be the case here.
Trusts over property give rise to “relevant property” unless a qualifying interest subsists in the property or subject to certain categories of trust (eg 18/25 trusts; BMTs) not relevant here.
Thank you for your respective replies - much appreciated.
One last question, if the Will is silent on age i.e. “as to 26% for X absolutely” and X is under the age of 18 at date of death, does the same rules apply?
This would not be a relevant property trust but a simple bare trust and the property would thus not be settled property for CGT purposes [TCGA 1992 s 60].
X is absolutely entitled. Where there is an age contingency then for CGT the property becomes settled.
I have read this trail with interest. In TSEM1563 HMRC gives examples of bare trusts. Example 1 states that the grandchildren cannot benefit until 21 but as there is no other condition beside the direction about payment they state it is a bare trust. Martyn’s clause appears to follow the same principles in Example 1?
A further point on this type of gift in a will is that if the young beneficiary becomes entitled to the income within two years of the date of death (eg beneficiary is 17 at the date of death, becomes entitled to the income at 18 and the capital at 21), s144 makes the trust an IPDI, not an 18-25 or relevant property trust. This means no exit charge at 21, but no holdover for CGT. I got this point from a recent Gill Steel webinar.
A bare trust would be created where a gift is made, for example, “to X absolutely to be paid upon attaining the age of 18 years”. There is a vested interest.
Whereas in Martyn’s clause the gift is contingent upon X reaching the specified age. Here there is no vested interest until the age is reached.