Hi
I have been asked to comment on a 1958 settlement whereunder the settlor has given each of her grandchildren an income interest on ‘the protective trusts set out in s33 Trustee Act 1925 but subject to the modification contained in clause 10 [of the settlement deed]’. Clause 10 of the settlement deed allows a Principal Beneficiary, notwithstanding the protective trust contained in the earlier clause, to assign their interest (with the consent of the trustees) to any one or more of the other principal beneficiaries or their issue.
Section 88 IHTA 1984 provides that where property is held on protective trusts and a divesting act occurs on or after 12 April 1978 then the divesting act is ignored and the principal beneficiary continues to be treated as beneficially entitled to an IIP in the property (which will be a qualifying IIP if the protective trust was created before 22 March 2006). However, subsection (2)(b) of s88 appears to restrict this treatment to situations where, following the divesting act, the property is “held on trusts to the like effect as those specified in paragraph (ii) of…section 33(1)” (i.e. discretionary trusts). Does this mean that if a principal beneficiary, today, assigns their pre-2006 IIP to their children, they will make a CLT and the children of the principal beneficiary will have a non-qualifying interest in possession that is subject to the relevant property regime going forward?
Thanks in advance!