I am dealing with a discretionary will trust where a deed of appointment was signed some time ago to create a revocable right to income in favour of 2 beneficiaries.
The intention now is to wind up the trust by way of absolute appointments (to different beneficiaries). However, under usual “life interest rules” this would amount to a PET by each of the life tenants should they pass away within 7 years.
Would it make any difference if the rights to income were revoked before the appointments out? Does the revocation of a right to income have the same IHT effect as a surrender of an interest in possession? Would a subsequent appointment from the trust change the result?
Any comments appreciated…
I assume the life interests were created pre 2006.
If the revocation took place before the appointment out (rather than simultaneously), the revocation would likely be a chargeable transfer rather than a PET. The subsequent appointment out would potentially suffer an exit charge
Osborne Clarke LLP
On the basis that the appointment onto revocable life interest trusts was made before 22 March 2006, a termination with an immediate absolute appointment will be a PET. However, a termination with a future appointment will result in the trust fund reverting to a discretionary trust during the intervening period and the life tenants each making in a chargeable lifetime transfer.
If the appointment onto revocable life interest trusts was made after 21 March 2006, the termination will be a non-event for IHT purposes as the trust remains within the relevant property regime. The appointment out will give rise to an exit charge, regardless of whether the appointment creating absolute interests occurs immediately upon the termination of the IIPs, or some time thereafter.
If the appointment out was, however, within 2 years from the date of death, there wouldn’t be an exit charge. The appointment would be treated as a PET by the life tenant.
Tanners Solicitors LLP