Finance (No.2) Bill

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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”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
377

Schedule 20
Section 156

Inheritance tax: rules for trusts etc
Part 1
“Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and
maintenance” trusts
5
Trusts for bereaved minors and Age 18-to-25 trusts
1     (1)
In IHTA 1984, after section 71 insert—
“71A
Trusts for bereaved minors
(1)
This section applies to settled property (including property settled
before 22nd March 2006) if—
10
(a)
it is held on statutory trusts for the benefit of a bereaved
minor under sections 46 and 47(1) of the Administration of
Estates Act 1925 (succession on intestacy and statutory trusts
in favour of issue of intestate), or
(b)
it is held on trusts for the benefit of a bereaved minor and
15
subsection (2) below applies to the trusts,

but this section does not apply to property in which a disabled
person’s interest subsists.
(2)
This subsection applies to trusts—
(a)
established under the will of a deceased parent of the
20
bereaved minor, or
(b)
established under the Criminal Injuries Compensation
Scheme,

which secure that the conditions in subsection (3) below are met.
(3)
Those conditions are—
25
(a)
that the bereaved minor, if he has not done so before
attaining the age of 18, will on attaining that age become
absolutely entitled to—
(i)
the settled property,
(ii)
any income arising from it, and
30
(iii)
any income that has arisen from the property held on
the trusts for his benefit and been accumulated before
that time,
(b)
that, for so long as the bereaved minor is living and under the
age of 18, if any of the settled property is applied for the
35
benefit of a beneficiary, it is applied for the benefit of the
bereaved minor, and
(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
40
there is any) arising from any of the settled property,
or
(ii)
no such income may be applied for the benefit of any
other person.

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
378

(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—
(a)
the trustees’ having the powers conferred by section 32 of the
Trustee Act 1925 (powers of advancement),
5
(b)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
proviso (a) of subsection (1) of that section,
(c)
the trustees’ having the powers conferred by section 33 of the
Trustee Act (Northern Ireland) 1958 (corresponding
10
provision for Northern Ireland),
(d)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
subsection (1)(a) of that section, or
(e)
the trustees’ having powers to the like effect as the powers
15
mentioned in any of paragraphs (a) to (d) above.
(5)
In this section “the Criminal Injuries Compensation Scheme”
means—
(a)
the schemes established by arrangements made under the
Criminal Injuries Compensation Act 1995,
20
(b)
arrangements made by the Secretary of State for
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.
25
(6)
The preceding provisions of this section apply in relation to Scotland
as if, in subsection (2) above, before “which” there were inserted “the
purposes of”.
71B
Charge to tax on property to which section 71A applies
(1)
Subject to subsections (2) and (3) below, there shall be a charge to tax
30
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
the trustees make a disposition as a result of which the value
35
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—
(a)
the bereaved minor attaining the age of 18 or becoming,
40
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
bereaved minor.
45
(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—

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
379

(a)
with the substitution of a reference to subsection (1)(b) above
for the reference in subsection (4) of section 70 above to
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
5
subsections (3), (5) and (8) of section 70 above to property to
which that section applies,
(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,
10
(ii)
which, immediately before it became property to
which section 71A above applies, was property to
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
15
section 71 above applied,

had become property to which section 71A above applies not
on that occasion but on the occasion (or last occasion) before
then when it became property to which section 71 above
applied, and
20
(d)
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
25
which section 71D below applied, and
(iii)
which, by the operation of section 71D(5)(a) below,
ceased on that occasion (“the 71D‑to‑71A occasion”)
to be property to which section 71D below applied,

had become property to which section 71A above applies not
30
on the 71D‑to‑71A occasion but on the relevant earlier
occasion.
(4)
In subsection (3)(d) above—
(a)
“the relevant earlier occasion” means the occasion (or last
occasion) before the 71D‑to‑71A occasion when the property
35
became property to which section 71D below applied, but
(b)
if the property, when it became property to which section
71D below applied, ceased at the same time to be property to
which section 71 above applied without ceasing to be settled
property, “the relevant earlier occasion” means the occasion
40
(or last occasion) when the property 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—
(a)
who has not yet attained the age of 18, and
45
(b)
at least one of whose parents has died.
71D
Age 18-to-25 trusts
(1)
This section applies to settled property (including property settled
before 22nd March 2006), but subject to subsection (5) below, if—

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
380

(a)
the property is held on trusts for the benefit of a person who
has not yet attained the age of 25,
(b)
at least one of the person’s parents has died, and
(c)
subsection (2) below applies to the trusts.
(2)
This subsection applies to trusts—
5
(a)
established under the will of a deceased parent of the person
mentioned in subsection (1)(a) above, or
(b)
established under the Criminal Injuries Compensation
Scheme,

which secure that the conditions in subsection (6) below are met.
10
(3)
Subsection (4) has effect where—
(a)
at any time on or after 22nd March 2006 but before 6th April
2008, or on the coming into force of paragraph 3(1) of
Schedule 20 to the Finance Act 2006, any property ceases to
be property to which section 71 above applies without
15
ceasing to be settled property, and
(b)
immediately after the property ceases to be property to which
section 71 above applies—
(i)
it is held on trusts for the benefit of a person who has
not yet attained the age of 25, and
20
(ii)
the trusts secure that the conditions in subsection (6)
below are met.
(4)
From the time when the property ceases to be property to which
section 71 above applies, but subject to subsection (5) below, this
section applies to the property (if it would not apply to the property
25
by virtue of subsection (1) above) for so long as—
(a)
the property continues to be settled property held on trusts
such as are mentioned in subsection (3)(b)(i) above, and
(b)
the trusts continue to secure that the conditions in subsection
(6) below are met.
30
(5)
This section does not apply—
(a)
to property to which section 71A above applies,
(b)
to property to which section 71 above, or section 89 below,
applies, or
(c)
to settled property if a person is beneficially entitled to an
35
interest in possession in the settled property and—
(i)
the person became beneficially entitled to the interest
in possession before 22nd March 2006, or
(ii)
the interest in possession is an immediate post-death
interest, or a transitional serial interest, and the
40
person became beneficially entitled to it on or after
22nd March 2006.
(6)
Those conditions are—
(a)
that the person mentioned in subsection (1)(a) or (3)(b)(i)
above (“B”), if he has not done so before attaining the age of
45
25, will on attaining that age become absolutely entitled to—
(i)
the settled property,
(ii)
any income arising from it, and

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
381

(iii)
any income that has arisen from the property held on
the trusts for his benefit and been accumulated before
that time,
(b)
that, for so long as B is living and under the age of 25, if any
of the settled property is applied for the benefit of a
5
beneficiary, it is applied for the benefit of B, and
(c)
that, for so long as B is living and under the age of 25, either—
(i)
B is entitled to all of the income (if there is any) arising
from any of the settled property, or
(ii)
no such income may be applied for the benefit of any
10
other person.
(7)
For the purposes of this section, trusts are not to be treated as failing
to secure that the conditions in subsection (6) above are met by
reason only of—
(a)
the trustees’ having the powers conferred by section 32 of the
15
Trustee Act 1925 (powers of advancement),
(b)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
proviso (a) of subsection (1) of that section,
(c)
the trustees’ having the powers conferred by section 33 of the
20
Trustee Act (Northern Ireland) 1958 (corresponding
provision for Northern Ireland),
(d)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
subsection (1)(a) of that section, or
25
(e)
the trustees’ having powers to the like effect as the powers
mentioned in any of paragraphs (a) to (d) above.
(8)
In this section “the Criminal Injuries Compensation Scheme”
means—
(a)
the schemes established by arrangements made under the
30
Criminal Injuries Compensation Act 1995,
(b)
arrangements made by the Secretary of State for
compensation for criminal injuries in operation before the
commencement of those schemes, and
(c)
the scheme established under the Criminal Injuries
35
Compensation (Northern Ireland) Order 2002.
(9)
The preceding provisions of this section apply in relation to
Scotland—
(a)
as if, in subsection (2) above, before “which” there were
inserted “the purposes of”, and
40
(b)
as if, in subsections (3)(b)(ii) and (4)(b) above, before “trusts”
there were inserted “purposes of the”.
71E
Charge to tax on property to which section 71D applies
(1)
Subject to subsections (2) to (4) below, there shall be a charge to tax
under this section—
45
(a)
where settled property ceases to be property to which section
71D above applies, or
(b)
in a case where paragraph (a) above does not apply, where
the trustees make a disposition as a result of which the value

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
382

of the settled property to which section 71D 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 71D above applies as a result of—
(a)
B becoming, at or under the age of 18, absolutely entitled as
5
mentioned in section 71D(6)(a) above,
(b)
the death, under the age of 18, of B,
(c)
becoming, at a time when B is living and under the age of 18,
property to which section 71A above applies, or
(d)
being paid or applied for the advancement or benefit of B—
10
(i)
at a time when B is living and under the age of 18, or
(ii)
on B’s attaining the age of 18.
(3)
Tax is not charged under this section in respect of—
(a)
a payment of costs or expenses (so far as they are fairly
attributable to property to which section 71D above applies),
15
or
(b)
a payment which is (or will be) income of any person for any
of the purposes of income tax or would for any of those
purposes be income of a person not resident in the United
Kingdom if he were so resident,
20

or in respect of a liability to make such a payment.
(4)
Tax is not charged under this section by virtue of subsection (1)(b)
above if the disposition is such that, were the trustees beneficially
entitled to the settled property, section 10 or section 16 above would
prevent the disposition from being a transfer of value.
25
(5)
For the purposes of this section the trustees shall be treated as
making a disposition if they omit to exercise a right (unless it is
shown that the omission was not deliberate) and the disposition shall
be treated as made at the time or latest time when they could have
exercised the right.
30
71F
Calculation of tax charged under section 71E in certain cases
(1)
Where—
(a)
tax is charged under section 71E above by reason of the
happening of an event within subsection (2) below, and
(b)
that event happens after B has attained the age of 18,
35

the tax is calculated in accordance with this section.
(2)
Those events are—
(a)
B becoming absolutely entitled as mentioned in section
71D(6)(a) above,
(b)
the death of B, and
40
(c)
property being paid or applied for the advancement or
benefit of B.
(3)
The amount of the tax is given by— $equation: cross[cross[string["Chargeable amount"],string["Relevant fraction"]],string["Settlement rate"]]$

Finance (No.2) Bill
Schedule 20 — Inheritance tax: rules for trusts etc
Part 1 — “Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and maintenance” trusts
383

(4)
For the purposes of subsection (3) above, the “Chargeable amount”
is—
(a)
the amount by which the value of property which is
comprised in the settlement and to which section 71D above
applies is less immediately after the event giving rise to the
5
charge than it would be but for the event, or
(b)
where the tax is payable out of settled property to which
section 71D above applies immediately after the event, the
amount which, after deducting the tax, is equal to the amount
on which tax would be charged by virtue of paragraph (a)
10
above.
(5)
For the purposes of subsection (3) above, the “Relevant fraction” is
three tenths multiplied by so many fortieths as there are complete
successive quarters in the period—
(a)
beginning with the day on which B attained the age of 18 or,
15
if later, the day on which the property became property to
which section 71D above applies, and
(b)
ending with the day before the occasion of the charge.
(6)
Where the whole or part of the Chargeable amount is attributable to
property that was excluded property at any time during the period
20
mentioned in subsection (5) above then, in determining the
“Relevant fraction” in relation to that amount or part, no quarter
throughout which that property was excluded property shall be
counted.
(7)
For the purposes of subsection (3) above, the “Settlement rate” is the
25
effective rate (that is to say, the rate found by expressing the tax
chargeable as a percentage of the amount on which it is charged) at
which tax would be charged on the value transferred by a chargeable
transfer of the description specified in subsection (8) below.
(8)
The chargeable transfer postulated in subsection (7) above is one—
30
(a)
the value transferred by which is equal to an amount
determined in accordance with subsection (9) below,
(b)
which is made at the time of the charge to tax under section
71E above by a transferor who has in the period of seven
years ending with the day of the occasion of the charge made
35
chargeable transfers having an aggregate value equal to that
of any chargeable transfers made by the settlor in the period
of seven years ending with the day on which the settlement
commenced, disregarding transfers made on that day, and
(c)
on which tax is charged in accordance with section 7(2)
40
above.
(9)
The amount referred to in subsection (8)(a) above is equal to the
aggregate of—
(a)
the value, immediately after the settlement commenced, of
the property then comprised in it,
45
(b)
the value, immediately afer a related settlement commenced,
of the property then comprised in it, and
(c)
the value, immediately after it became comprised in the
settlement, of any property which became so comprised after
the settlement commenced and before the occasion of the
50