CheckLists.Tax (beta)
i7. Appointments and powers
INCOME TAX
Settlements code
- Query whether beneficiary consenting to termination of interest can make them settlor
- Releasing or assigning an interest/prior interest can make that person the settlor in relation to the subsequent interest (see i12. Disposing of a trust interest).
- Query whether consenting to a termination of the interest by the trustees is treated in the same way.
- Logically it should be if the person's consent is required but otherwise not unless there is some wider arrangement.
Legislation:
Cases:
HMRC manuals:
Commentary: Chamberlain, §11.83.
See also:
- Excluding the settlor/spouse
- Excluding the settlor/spouse will prevent the income of the trust being attributed to the settlor in subsequent years if done properly.
- But it will not stop the settlor being treated as receiving income insofar as such income is matched to a capital payment under ITTOIA s.633.
- Capital payment could include, e.g., a loan to the settlor or repaying a loan made by the settlor.
- Section 633 applies even where the capital sum was paid in a year in which the trust was settlor interested (but matching only occurs for 11 years).
- See i8. Distribution to beneficiary.
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
CAPITAL GAINS TAX
Grant of interest to the settlor
- Clawback of holdover relief if trust becomes settlor-interested within 6 years
XX
Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
INHERITANCE TAX
- Trust settled by will, within 2 years of death, granting interest that would have amounted to IPDI
- If:
(1) property is settled by a person's will; and
(2) within 2 years of death, there is an event causing the property to be held on trusts that would, if in the will, have given rise to an IPDI
then: IHT applies as if the will had so provided (IHTA 1984, s.144).
- Similarly where the event causes the property to be held on trusts within s.71A or s.71D.
- Trustee mistakenly was not aware of this and sought rescission in Payne v. Tyler.
Legislation: IHTA 1984, s.144;
Cases: Payne v. Tyler [2019] EWHC 2347 (Ch);
HMRC manuals:
Commentary:
See also:
- Depreciatory transaction followed by distribution not benefitting from s.10 (arm's length exception)
- "If trustees in the circumstances envisaged in paragraph 6(3) took steps which devalued the settled property with the object of making subsequent distributions thereof why should the two events be considered as independent of one another? Neither law nor logic would suggest that they should." (Macpherson, 174)
Legislation:
Cases:
IRC v. Macpherson [1989] AC 159 (HoL);
HMRC manuals:
Commentary:
See also:
Gift with reservation of benefit
- Exercise of power by trustees to terminate interest is not a gift by the affected beneficiary
- The trustee decision to terminate an appointment is not a gift either by the trustees or the affected beneficiary. Accordingly GWR should not apply.
Legislation:
Cases:
HMRC manuals:
Commentary: McCutcheon 7-49;
See also:
- Deemed gift where qualifying IIP terminated
- Termination of a qualifying IIP during the lifetime of the beneficiary is treated as a gift of the property to which the IIP related before termination.
- Query whether this applies for the purposes of s.102A - C - the literal wording says not (s.102ZA(2)).
- Does not apply if the IIP-holder becomes absolutely entitled to the property.
- If the property remains settled following termination, trace into the settled property deriving from the gift (para 4A).
- If the settlement comes to an end, trace into the property leaving the settlement deriving from the gift (para 4A(4)).
- Settlement income is included in the tracing unless it arises after the material date (i.e. the date of death or deemed PET) (para 4A(5)).
- If the donor becomes absolutely entitled to property at this time, that is excluded from the gift, but any consideration the donor gives to become absolutely entitled is included (para 4A(4)).
Legislation: FA 1986, s.102ZA; FA 1986, Sch 20;
Cases:
HMRC manuals:
Commentary: McCutcheon 7-101;
See also: