Trusts (Capital and Income) Bill (HC Bill 81)

1 Disapplication of apportionment etc. rules

(1) Any entitlement to income under a new trust is to income as it arises (and
accordingly section 2 of the Apportionment Act 1870, which provides for
income to accrue from day to day, does not apply in relation to the trust).

(2) 5The following do not apply in relation to a new trust—

(a) the first part of the rule known as the rule in Howe v. Earl of Dartmouth
(which requires certain residuary personal estate to be sold);

(b) the second part of that rule (which withholds from a life tenant income
arising from certain investments and compensates the life tenant with
10payments of interest);

(c) the rule known as the rule in Re Earl of Chesterfield’s Trusts (which
requires the proceeds of the conversion of certain investments to be
apportioned between capital and income);

(d) the rule known as the rule in Allhusen v. Whittell (which requires a
15contribution to be made from income for the purpose of paying a
deceased person’s debts, legacies and annuities).

(3) Trustees have power to sell any property which (but for subsection (2)(a)) they
would have been under a duty to sell.

(4) Subsections (1) to (3) have effect subject to any contrary intention that
20appears—

(a) in any trust instrument of the trust, and

(b) in any power under which the trust is created or arises.

(5) In this section “new trust” means a trust created or arising on or after the day
on which this section comes into force (and includes a trust created or arising
25on or after that day under a power conferred before that day).

2 Classification of certain corporate distributions as capital

(1) A receipt consisting of a tax-exempt corporate distribution is to be treated for
the purposes of any trust to which this section applies as a receipt of capital
(even if it would otherwise be treated for those purposes as a receipt of
5income).

(2) Subsection (1) has effect subject to any contrary intention that appears—

(a) in any trust instrument of the trust, and

(b) in any power under which the trust is created or arises.

(3) The following are tax-exempt corporate distributions for the purposes of this
10section and section 3—

(a) a distribution that is an exempt distribution by virtue of section 1076,
1077 or 1078 of the Corporation Tax Act 2010, and

(b) any other distribution of assets (in any form) by a body corporate,
where the distribution is of a description specified by an order made by
15the Secretary of State by statutory instrument.

(4) An order under subsection (3)(b) may specify a description of distribution only
if neither income tax nor capital gains tax is chargeable in respect of a
distribution of that description.

(5) A statutory instrument containing an order under subsection (3)(b) is subject
20to annulment in pursuance of a resolution of either House of Parliament.

(6) This section applies to any trust, whether created or arising before or after this
section comes into force.

3 Power to compensate income beneficiary

(1) This section applies in any case where—

(a) 25by virtue of section 2 a tax-exempt corporate distribution made by a
body corporate is treated for the purposes of a trust to which that
section applies as a receipt of capital, and

(b) the trustees are satisfied that it is likely that, but for the distribution,
there would have been a receipt from the body corporate that would
30have been a receipt of income for the purposes of the trust.

(2) The trustees may make a payment out of the capital funds of the trust, or
transfer any property of the trust, to an income beneficiary for the purpose set
out in subsection (3) (and any such payment or transfer is to be treated as a
payment or transfer of capital).

(3) 35The purpose is placing the income beneficiary (so far as practicable) in the
position in which the trustees consider that the beneficiary would have been
had there been the receipt of income mentioned in subsection (1)(b).

(4) In this section “income beneficiary”, in relation to a trust, means a person
entitled to income arising under the trust, or for whose benefit such income
40may be applied.

4 Total return investment by charities

After section 104 of the Charities Act 2011 insert—

“Total return investment

104A Investment of endowment fund on total return basis

(1) 5This section applies to any available endowment fund of a charity.

(2) If the condition in subsection (3) is met in relation to the charity, the
charity trustees may resolve that the fund, or a portion of it—

(a) should be invested without the need to maintain a balance
between capital and income returns, and

(b) 10accordingly, should be freed from the restrictions with respect
to expenditure of capital that apply to it.

(3) The condition is that the charity trustees are satisfied that it is in the
interests of the charity that regulations under section 104B(1)(b) should
apply in place of the restrictions mentioned in subsection (2)(b).

(4) 15While a resolution under subsection (2) has effect, the regulations apply
in place of the restrictions.

(5) In this section “available endowment fund”, in relation to a charity,
means—

(a) the whole of the charity’s permanent endowment if it is all
20subject to the same trusts, or

(b) any part of its permanent endowment which is subject to any
particular trusts that are different from those to which any other
part is subject.

104B Total return investment: regulations

(1) 25The Commission may by regulations make provision about—

(a) resolutions under section 104A(2),

(b) the investment of a relevant fund without the need to maintain
a balance between capital and income returns, and expenditure
from such a fund, and

(c) 30the steps that must be taken by charity trustees in respect of a
fund, or portion of a fund, in the event of a resolution under
section 104A(2) ceasing to have effect in respect of the fund or
portion.

(2) Regulations under subsection (1)(a) may, in particular—

(a) 35specify steps that must be taken by charity trustees before
passing a resolution under section 104A(2),

(b) make provision about the variation and revocation of such a
resolution,

(c) require charity trustees to notify the Commission of the passing,
40variation or revocation of such a resolution, and

(d) specify circumstances in which such a resolution is to cease to
have effect.

(3) Regulations under subsection (1)(b) may, in particular—

(a) make provision requiring a relevant fund to be invested, and
the returns from that investment to be allocated, in such a way
as to maintain (so far as practicable) the long-term capital value
of the fund,

(b) 5make provision about the taking of advice by charity trustees in
connection with the investment of, and expenditure from, a
relevant fund,

(c) confer on the charity trustees of a relevant fund a power (subject
to such restrictions as may be specified in the regulations) to
10accumulate income,

(d) make provision about expenditure from a relevant fund
(including by imposing limits on expenditure and specifying
circumstances in which expenditure requires the Commission’s
consent), and

(e) 15require charity trustees to report to the Commission on the
investment of, and expenditure from, a relevant fund.

(4) A power to accumulate income conferred by regulations under
subsection (1)(b) or (c) is not subject to section 14(3) of the Perpetuities
and Accumulations Act 2009 (which provides for certain powers to
20accumulate income to cease to have effect after 21 years).

(5) Any regulations made by the Commission under this section must be
published by the Commission in such manner as it thinks fit.

(6) In this section “relevant fund” means a fund, or portion of a fund, in
respect of which a resolution under section 104A(2) has effect, and
25includes the returns from the investment of the fund or portion.”

5 Crown application, extent and commencement

(1) Sections 1 to 3 bind the Crown.

(2) This Act extends to England and Wales only.

(3) This section and section 6 come into force on the day on which this Act is
30passed, but otherwise this Act comes into force on such day as the Secretary of
State may by order made by statutory instrument appoint.

(4) An order under subsection (3) may—

(a) appoint different days for different purposes;

(b) make such provision as the Secretary of State considers necessary or
35expedient for transitory, transitional or saving purposes in connection
with the coming into force of any provision of this Act.

6 Short title

This Act may be cited as the Trusts (Capital and Income) Act 2012.