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Finance (No.2) Bill


Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors” and “accumulation and maintenance” trusts

375

 

(c)   

that, for so long as the bereaved minor is living and under the

age of 18, either—

(i)   

the bereaved minor is entitled to all of the income (if

there is any) arising from any of the settled property,

or

5

(ii)   

no such income may be applied for the benefit of any

other person.

(4)   

Trusts such as are mentioned in paragraph (a) or (b) of subsection (2)

above are not to be treated as failing to secure that the conditions in

subsection (3) above are met by reason only of the powers conferred

10

on the trustees by—

(a)   

section 32 of the Trustee Act 1925 (powers of advancement),

or

(b)   

section 33 of the Trustee Act (Northern Ireland) 1958

(corresponding provision for Northern Ireland).

15

(5)   

In this section “the Criminal Injuries Compensation Scheme”

means—

(a)   

the schemes established by arrangements made under the

Criminal Injuries Compensation Act 1995,

(b)   

arrangements made by the Secretary of State for

20

compensation for criminal injuries in operation before the

commencement of those schemes, and

(c)   

the scheme established under the Criminal Injuries

Compensation (Northern Ireland) Order 2002.

(6)   

The preceding provisions of this section apply in relation to Scotland

25

with the following modifications—

(a)   

in subsection (2) above, before “which” insert “the purposes

of”, and

(b)   

omit subsection (4) above.

71B     

Charge to tax on property to which section 71A applies

30

(1)   

Subject to subsections (2) and (3) below, there shall be a charge to tax

under this section—

(a)   

where settled property ceases to be property to which section

71A above applies, and

(b)   

in a case where paragraph (a) above does not apply, where

35

the trustees make a disposition as a result of which the value

of settled property to which section 71A above applies is less

than it would be but for the disposition.

(2)   

Tax is not charged under this section where settled property ceases

to be property to which section 71A applies as a result of—

40

(a)   

the bereaved minor attaining the age of 18 or becoming,

under that age, absolutely entitled as mentioned in section

71A(3)(a) above, or

(b)   

the death under that age of the bereaved minor, or

(c)   

being paid or applied for the advancement or benefit of the

45

bereaved minor.

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors” and “accumulation and maintenance” trusts

376

 

(3)   

Subsections (3) to (8) and (10) of section 70 above apply for the

purposes of this section as they apply for the purposes of that section,

but—

(a)   

with the substitution of a reference to subsection (1)(b) above

for the reference in subsection (4) of section 70 above to

5

subsection (2)(b) of that section,

(b)   

with the substitution of a reference to property to which

section 71A above applies for each of the references in

subsections (3), (5) and (8) of section 70 above to property to

which that section applies, and

10

(c)   

as if, for the purposes of section 70(8) above as applied by this

subsection, property—

(i)   

which is property to which section 71A above applies,

(ii)   

which, immediately before it became property to

which section 71A above applies, was property to

15

which section 71 above applied, and

(iii)   

which, by the operation of section 71(1B) above,

ceased on that occasion to be property to which

section 71 above applied,

   

had become property to which section 71A above applies not

20

on that occasion but on the occasion (or last occasion) before

then when it became property to which section 71 above

applied.

71C     

Sections 71A and 71B: meaning of “bereaved minor”

In sections 71A and 71B above “bereaved minor” means a person—

25

(a)   

who has not yet attained the age of 18, and

(b)   

at least one of whose parents has died.”

      (2)  

Sub-paragraph (1) shall be deemed to have come into force on 22nd March

2006.

Section 71 of IHTA 1984 not to apply to property settled on or after 22nd March 2006

30

2     (1)  

Section 71 of IHTA 1984 (accumulation and maintenance trusts) is amended

as follows.

      (2)  

In subsection (1) (settled property to which section applies, subject to

subsection (2)), for “subsection” substitute “subsections (1A) to”.

      (3)  

After subsection (1) insert—

35

“(1A)   

This section does not apply to settled property at any particular time

on or after 22nd March 2006 unless this section—

(a)   

applied to the settled property immediately before 22nd

March 2006, and

(b)   

has applied to the settled property at all subsequent times up

40

to the particular time.

(1B)   

This section does not apply to settled property at any particular time

on or after 22nd March 2006 if, at that time, section 71A below applies

to the settled property.”

      (4)  

Where a chargeable transfer to which section 54A of IHTA 1984 applies was

45

made before 22nd March 2006, that section has effect in relation to that

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

377

 

transfer as if references in that section to section 71 of IHTA 1984 were to

section 71 of IHTA 1984 without the amendments made by sub-paragraphs

(2) and (3).

      (5)  

There is no charge to tax under section 71 of IHTA 1984 in a case where

settled property ceases, by the operation of the subsection (1B) inserted into

5

that section by this paragraph, to be property to which that section applies.

      (6)  

Sub-paragraphs (1) to (5) shall be deemed to have come into force on 22nd

March 2006.

Section 71 of IHTA 1984 to cease to apply to certain settled property from 6th April 2008

3     (1)  

In section 71(1)(a) of IHTA 1984 (section applies to settled property only if

10

one or more persons will become beneficially entitled on or before reaching

a specified age not exceeding 25)—

(a)   

for “twenty-five” substitute “eighteen”, and

(b)   

omit “or to an interest in possession in it”.

      (2)  

Sub-paragraph (1) comes into force on 6th April 2008 but only for the

15

purpose of determining whether, at a time on or after that day, section 71 of

IHTA 1984 applies to settled property.

      (3)  

There is no charge to tax under section 71 of IHTA 1984 in a case where—

(a)   

settled property ceases, on the coming into force of sub-paragraph

(1), to be property to which that section applies, but

20

(b)   

that section would immediately after the coming into force of sub-

paragraph (1) apply to the settled property but for the amendments

made by sub-paragraph (1).

Part 2

Interests in possession: when settled property is part of beneficiary’s estate

25

Aggregation with person’s estate of property in which interest in possession subsists

4     (1)  

In section 49 of IHTA 1984, after subsection (1) insert—

“(1A)   

Where the interest in possession mentioned in subsection (1) above

is one to which the person becomes beneficially entitled on or after

22nd March 2006, subsection (1) above applies in relation to that

30

interest only if, and for so long as, it is—

(a)   

an immediate post-death interest,

(b)   

a disabled person’s interest, or

(c)   

a transitional serial interest.

(1B)   

Where the interest in possession mentioned in subsection (1) above

35

is one to which the person became beneficially entitled before 22nd

March, subsection (1) above does not apply in relation to that interest

at any time when section 71A below applies to the property in which

the interest subsists.”

      (2)  

Sub-paragraph (1) shall be deemed to have come into force on 22nd March

40

2006.

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

378

 

“Immediate post-death interests” and “transitional serial interests”

5     (1)  

In IHTA 1984, after section 49 insert—

“49A    

Immediate post-death interest

(1)   

Where a person (“L”) is beneficially entitled to an interest in

possession in settled property, for the purposes of this Chapter that

5

interest is an “immediate post-death interest” only if the following

conditions are satisfied.

(2)   

Condition 1 is that the settlement was effected by will or under the

law relating to intestacy.

(3)   

Condition 2 is that L became beneficially entitled to the interest in

10

possession on the death of the testator or intestate.

(4)   

Condition 3 is that if the interest can be brought to an end by the

exercise of a power (whether a power to bring the interest to an end

in its entirety, to bring it to an end so far as relating to part only of the

property in which it subsists or to bring it to an end in either of those

15

ways), section 49B below applies in relation to the power.

(5)   

Condition 4 is that on the interest’s coming to an end (whether in its

entirety or so far as relating to part only of the property in which it

subsists)—

(a)   

a person (whether or not L) will become absolutely entitled to

20

the property in which the interest ceases to subsist, or

(b)   

section 71A below will apply to that property, or

(c)   

section 89 below will apply to that property, or

(d)   

that property will be held on trust for charitable purposes

only.

25

(6)   

Condition 5 is that—

(a)   

section 71A below does not apply to the property in which

the interest subsists, and

(b)   

the interest is not a disabled person’s interest.

(7)   

Condition 6 is that Conditions 3 to 5 have been satisfied at all times

30

since L became beneficially entitled to the interest in possession.

(8)   

For the purposes of Conditions 3 and 4, and of Condition 6 so far as

relating to those Conditions, ignore—

(a)   

power to give directions as to the settled property that is

exercisable jointly by the persons who between them are

35

entitled to the entire beneficial interest in that property, and

(b)   

anything that could occur as a result of exercise of any such

power.

(9)   

Where L is the principal beneficiary under trusts to the like effect as

those specified under section 33(1)(i) of the Trustee Act 1925—

40

(a)   

for the purposes of Condition 3, and Condition 6 so far as

relating to Condition 3, ignore anything that could cause

those trusts to fail or determine, and

(b)   

Condition 4, and Condition 6 so far as relating to Condition

4, do not apply for the purpose of determining whether L’s

45

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

379

 

interest under those trusts is an immediate post-death

interest.

49B     

Immediate post-death interest: powers to end interest

(1)   

This section has effect for the purposes of section 49A(4) above.

(2)   

This section applies in relation to a power if—

5

(a)   

each non-beneficial exercise of the power requires L’s prior

consent, or

(b)   

the power is exercisable by L (whether alone or jointly).

(3)   

For the purposes of this section, an exercise of a power is “non-

beneficial” if the exercise—

10

(a)   

results in the interest being brought to an end, whether in its

entirety or so far as relating to part only of the property in

which it subsists, but

(b)   

does not at the same time result in—

(i)   

L becoming absolutely entitled to the property in

15

which the interest ceases to subsist, or

(ii)   

that property being otherwise paid or applied for the

advancement or benefit of L.

49C     

Transitional serial interest

(1)   

Where a person (“B”) is beneficially entitled to an interest in

20

possession in settled property (“the current interest”), for the

purposes of this Chapter that interest is a “transitional serial interest”

only if the following conditions are met.

(2)   

Condition 1 is that—

(a)   

the settlement commenced before 22nd March 2006, and

25

(b)   

immediately before 22nd March 2006, the property then

comprised in the settlement was property in which B, or

some other person, was beneficially entitled to an interest in

possession (“the prior interest”).

(3)   

Condition 2 is that the prior interest came to an end at a time on or

30

after 22nd March 2006 but before 6th April 2008.

(4)   

Condition 3 is that B became beneficially entitled to the current

interest at that time.

(5)   

Condition 4 is that—

(a)   

section 71A below does not apply to the property in which

35

the interest subsists, and

(b)   

the interest is not a disabled person’s interest.”

      (2)  

Sub-paragraph (1) shall be deemed to have come into force on 22nd March

2006.

Disabled persons’ trusts: meaning of “disabled person’s interest” and “disabled person”

40

6     (1)  

Section 89 (trusts for disabled persons) is amended as follows.

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 2 — Interests in possession: when settled property is part of beneficiary’s estate

380

 

      (2)  

After subsection (2) insert—

“(2A)   

In this Act “disabled person’s interest” means an interest in

possession to which a person is under subsection (2) above treated as

beneficially entitled.”

      (3)  

After subsection (4) insert—

5

“(5)   

The reference in subsection (1) above to a disabled person includes,

in relation to any settled property, a reference to a person who, when

the property was transferred into settlement,—

(a)   

would have been in receipt of attendance allowance under

section 64 of either of the Acts mentioned in subsection (4)(b)

10

above had provision made by regulations under section 67(1)

or (2) of that Act (non-satisfaction of conditions for

attendance allowance where person is undergoing treatment

for renal failure in a hospital or is provided with certain

accommodation) been ignored, or

15

(b)   

would have been in receipt of disability living allowance by

virtue of entitlement to the care component at the highest or

middle rate had provision made by regulations under section

72(8) of either of the Acts mentioned in subsection (4)(c)

above (no payment of disability living allowance for persons

20

for whom certain accommodation is provided) been ignored.

(6)   

The reference in subsection (1) above to a disabled person also

includes, in relation to any settled property, a reference to a person

who satisfies the Commissioners for Her Majesty’s Revenue and

Customs—

25

(a)   

that he would, when the property was transferred into

settlement, have been in receipt of attendance allowance

under section 64 of either of the Acts mentioned in subsection

(4)(b) above—

(i)   

had he met the conditions as to residence under

30

section 64(1) of that Act, and

(ii)   

had provision made by regulations under section

67(1) or (2) of that Act been ignored, or

(b)   

that he would, when the property was transferred into

settlement, have been in receipt of a disability living

35

allowance by virtue of entitlement to the care component at

the highest or middle rate—

(i)   

had he met the prescribed conditions as to residence

under section 71(6) of either of the Acts mentioned in

subsection (4)(c) above, and

40

(ii)   

had provision made by regulations under section

72(8) of that Act been ignored.”

      (4)  

Sub-paragraph (2) shall be deemed to have come into force on 22nd March

2006.

      (5)  

Sub-paragraph (3) shall be deemed to have come into force on 22nd March

45

2006, but only in respect of property transferred into settlement on or after

that day.

 

 

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 3 — Related amendments in IHTA 1984

381

 

Part 3

Related amendments in IHTA 1984

Commencement

7          

The following paragraphs of this Part of this Schedule shall be deemed to

have come into force on 22nd March 2006.

5

Deemed disposition where omission to exercise a right increases value of another person’s estate

or of settled property not aggregated with a person’s estate

8          

In section 3(3) of IHTA 1984 (failure to exercise a right treated as disposition

if the omission increases the value of another person’s estate or the value of

settled property in which no interest in possession subsists), for the words

10

from the beginning to “increased” substitute—

   

“Where the value of a person’s estate is diminished, and the value—

(a)   

of another person’s estate, or

(b)   

of any settled property, other than settled property treated by

section 49(1) below as property to which a person is

15

beneficially entitled,

   

is increased”.

Potentially exempt transfers: provision in consequence of section 71 of IHTA 1984 not

applying to property settled on or after 22nd March 2006

9     (1)  

Section 3A of IHTA 1984 (potentially exempt transfers) is amended as

20

follows.

      (2)  

In subsection (1)(a) (transfer must be one made on or after 18th March 1986),

after “1986” insert “but before 22nd March 2006”.

      (3)  

After subsection (1) insert—

“(1A)   

Any reference in this Act to a potentially exempt transfer is also a

25

reference to a transfer of value—

(a)   

which is made by an individual on or after 22nd March 2006,

(b)   

which, apart from this section, would be a chargeable transfer

(or to the extent to which, apart from this section, it would be

such a transfer), and

30

(c)   

to the extent that it constitutes—

(i)   

a gift to another individual, or

(ii)   

a gift into a disabled trust.

(1B)   

Subsections (1) and (1A) above have effect subject to any provision

of this Act which provides that a disposition (or transfer of value) of

35

a particular description is not a potentially exempt transfer.”

      (4)  

In subsection (2) (extent to which transfer is a gift to another individual),

after “subsection (1)(c)” insert “or (1A)(c)(i)”.

      (5)  

After subsection (3) insert—

“(3A)   

Subject to subsection (6) below, a transfer of value falls within

40

subsection (1A)(c)(ii) above to the extent that the value transferred is

 

 

 
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