Serial Interests in Possession

Trusts Discussion
1

Dear all,

I have an IIP which has terminated followed by 2 concurrent life interests of half the fund to each life tenant moving forward. Up until now the income has been mandated directly to the life tenant and she has completed her own tax returns. No money has been touched by the trustees and no trustee account has been opened. As and when the trustees raise a bill fuds are encashed to be made available for those fees.

Now the life tenant has died we have asked for the funds to be divided into two and income to be mandated to each f the life tenants according for the rest of their lives. This would continue the smooth running of the trust without having the expense of opening a trust account and then having to account to each for the income on a regular basis and then having to do tax returns for the life tenants to then go to the trouble an expense of having to recover tax paid.

The Financial Advisor says we do not have to complete annual income tax returns if the money is simply coming in to the trust account and straight out again, but I am not so sure. Surely, as the trustees will have had the money albeit for a very brief time, they will have to submit annual returns? Please can someone confirm if I am right or wrong?

We have a number of IIP trusts which have operated very smoothly and very cheaply up until now with the life tenant receiving the income directly from the source and a very light touch to review investments and income on an annual basis keeping very reasonable and low administration costs. We do not want to discover that for these trusts we have to incur additional expense and time to open a trustee account, submit annual returns and then find the life tenant put to the trouble and expense of simply recovering the tax already paid

Thanks as ever for this forums wisdom.

Lis Whybrow

WhatleyRecordon

Solicitors

12 Worcester Road

Malvern

Worcestershire WR14 4QU

Tel: 01684 892939

Fax: 01684 892327

2

You will indeed have to register for FATCA and with HMRC’s Trusts Registration Service

3

Do the successive life tenants have a right to half the income or the right to the income of a half share? See Re Freeston’s Charity, 1978.

Whilst, in either case, the portfolio can be split into 2 and the income from each half mandated directly to the life tenant, with the first situation, the 2 halves must mirror each other, so that the income beneficiary continues to receive a half of the total income generated. The split would be for administrative purposes only and the 2 pots would still be a single settlement for CGT and all other purposes (including, say advances under s.32 Trustee Act 1925).

With the second situation, the 2 halves could be administered totally separately.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

4

No need for the trustees to return income if all is mandated.

If no CGT is incurred no need for trustees tax returns subject to HMRC agreeing this.

You should always keep annual capital accounts and comply with trustees duties concerning investment reviews etc. There is no such thing as a light touch, these duties must be fulfilled.

Simon Northcott