13. IHT & TRUSTS

Question 1

What is an IIP

Answer 1

A to life, remainder to B

different rules to trust law

Question 2

Pearson v IRC

Answer 2

IIP = present right to present income (ordinary natural meaning)

power to accumulate = not IIP

power to advance capital = can be IIP
power to terminate present right to present enjoyment = advancement
power to prevent PRTPE = accumulate (not IIP)

admin power = can be IIP

Question 3

Taxing IIP trusts (old)

Answer 3

s.49 - trust property treated as property of life tenant (absolute gift)

S –> A (absolute gift)
A –> B (absolute gift)

IGNORE the fact S gave assets to T to hold for A

Question 4

Taxing IIP trusts (RULES)

Answer 4

S SETTLES

• if on death = normal IHT (40%)
• during life = PET

A gives to B (s.51-53)

• on death = normal IHT (40%)
• during life = PET

Question 5

Taxing discretionary trusts (now RPR regime)

Answer 5

charge on entry

• inter vivos = 20% (LCT)
• death - normal IHT (40%)

10 year anniversary charge (s.64 up to 6%)
exit charges to prevent avoidance (s.65)

Question 6

old regime only applies now when (s.59)

Answer 6

ONE - IIP trusts created before 2006
TWO - IIP trusts created after 2006 on death
THREE - transitional provisions apply
FOUR - inter vivos post 2006 within s.89B (disabled trust)

transitional provisions
- s.49A: old IIP treatment for first life interest but on A’s death, non-IIP rules apply (RPR) unless B’s interest qualifies under another head (e.g. disabled)

• others: give up life interest within certain time and B’s can be under IIP too

Question 7

relevant property regime now applies for

Answer 7

ONE - IIP trusts created after 2006 (and now QIIP)
TWO - ALL discretionary trusts not deemed QIIP (e.g. some disabled)
THREE - all IIP trusts unless favoured property regime applies

Question 8

accumulation and maintenance trusts

Answer 8

used to be under IIP rules

• now bereaved minor trust (s.71A)
• and 18-25 trusts (s.71D)

Question 9

favoured property

Answer 9

not QIIP

• special treatment
• no 10 year charge
• own rules

Question 10

bereaved minor’s trust

Answer 10

gets old a&m treatment (i.e. old IIP treatment)

• no exit charge or 10 year charge
• no IHT on B’s death

Question 11

18-25 trusts

Answer 11

BMT continues till 25

• at 25, charge equivalent to periodic charge applies (but starting at 18th bday)
• max periodic charge = 4.2%
• earlier distribution = lower charge
• no charge on death of B before 18

Question 12

Trusts for disabled persons

Answer 12

old IIP treatment

Question 13

Charitable trusts

Answer 13

s. 58
- not RPR
- tapered charge arises if settled property ceases to be this kind or T makes disposition reducing value (and disposition is not for charitable purpose)

Question 14

employee trusts

Answer 14

s. 58, not RP
- s.86(3) defined
- tapered charge