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Inheritance tax: rules for trusts etc |
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“Trusts for bereaved minors”, “age 18-to-25 trusts” and “accumulation and |
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Trusts for bereaved minors and Age 18-to-25 trusts |
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1 (1) | In IHTA 1984, after section 71 insert— |
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“71A | Trusts for bereaved minors |
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(1) | This section applies to settled property (including property settled |
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before 22nd March 2006) if— |
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(a) | it is held on statutory trusts for the benefit of a bereaved |
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minor under sections 46 and 47(1) of the Administration of |
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Estates Act 1925 (succession on intestacy and statutory trusts |
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in favour of issue of intestate), or |
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(b) | it is held on trusts for the benefit of a bereaved minor and |
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subsection (2) below applies to the trusts, |
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| but this section does not apply to property in which a disabled |
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person’s interest subsists. |
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(2) | This subsection applies to trusts— |
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(a) | established under the will of a deceased parent of the |
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(b) | established under the Criminal Injuries Compensation |
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| which secure that the conditions in subsection (3) below are met. |
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(3) | Those conditions are— |
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(a) | that the bereaved minor, if he has not done so before |
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attaining the age of 18, will on attaining that age become |
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(i) | the settled property, |
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(ii) | any income arising from it, and |
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(iii) | any income that has arisen from the property held on |
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the trusts for his benefit and been accumulated before |
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(b) | that, for so long as the bereaved minor is living and under the |
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age of 18, if any of the settled property is applied for the |
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benefit of a beneficiary, it is applied for the benefit of the |
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(c) | that, for so long as the bereaved minor is living and under the |
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(i) | the bereaved minor is entitled to all of the income (if |
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there is any) arising from any of the settled property, |
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(ii) | no such income may be applied for the benefit of any |
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(4) | Trusts such as are mentioned in paragraph (a) or (b) of subsection (2) |
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above are not to be treated as failing to secure that the conditions in |
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subsection (3) above are met by reason only of— |
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(a) | the trustees’ having the powers conferred by section 32 of the |
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Trustee Act 1925 (powers of advancement), |
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(b) | the trustees’ having those powers but free from, or subject to |
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a less restrictive limitation than, the limitation imposed by |
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proviso (a) of subsection (1) of that section, |
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(c) | the trustees’ having the powers conferred by section 33 of the |
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Trustee Act (Northern Ireland) 1958 (corresponding |
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provision for Northern Ireland), |
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(d) | the trustees’ having those powers but free from, or subject to |
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a less restrictive limitation than, the limitation imposed by |
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subsection (1)(a) of that section, or |
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(e) | the trustees’ having powers to the like effect as the powers |
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mentioned in any of paragraphs (a) to (d) above. |
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(5) | In this section “the Criminal Injuries Compensation Scheme” |
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(a) | the schemes established by arrangements made under the |
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Criminal Injuries Compensation Act 1995, |
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(b) | arrangements made by the Secretary of State for |
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compensation for criminal injuries in operation before the |
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commencement of those schemes, and |
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(c) | the scheme established under the Criminal Injuries |
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Compensation (Northern Ireland) Order 2002. |
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(6) | The preceding provisions of this section apply in relation to Scotland |
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as if, in subsection (2) above, before “which” there were inserted “the |
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71B | Charge to tax on property to which section 71A applies |
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(1) | Subject to subsections (2) and (3) below, there shall be a charge to tax |
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(a) | where settled property ceases to be property to which section |
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(b) | in a case where paragraph (a) above does not apply, where |
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the trustees make a disposition as a result of which the value |
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of settled property to which section 71A above applies is less |
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than it would be but for the disposition. |
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(2) | Tax is not charged under this section where settled property ceases |
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to be property to which section 71A applies as a result of— |
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(a) | the bereaved minor attaining the age of 18 or becoming, |
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under that age, absolutely entitled as mentioned in section |
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(b) | the death under that age of the bereaved minor, or |
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(c) | being paid or applied for the advancement or benefit of the |
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(3) | Subsections (3) to (8) and (10) of section 70 above apply for the |
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purposes of this section as they apply for the purposes of that section, |
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(a) | with the substitution of a reference to subsection (1)(b) above |
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for the reference in subsection (4) of section 70 above to |
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subsection (2)(b) of that section, |
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(b) | with the substitution of a reference to property to which |
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section 71A above applies for each of the references in |
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subsections (3), (5) and (8) of section 70 above to property to |
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which that section applies, |
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(c) | as if, for the purposes of section 70(8) above as applied by this |
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(i) | which is property to which section 71A above applies, |
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(ii) | which, immediately before it became property to |
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which section 71A above applies, was property to |
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which section 71 above applied, and |
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(iii) | which, by the operation of section 71(1B) above, |
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ceased on that occasion to be property to which |
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section 71 above applied, |
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| had become property to which section 71A above applies not |
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on that occasion but on the occasion (or last occasion) before |
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then when it became property to which section 71 above |
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(d) | as if, for the purposes of section 70(8) above as applied by this |
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(i) | which is property to which section 71A above applies, |
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(ii) | which, immediately before it became property to |
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which section 71A above applies, was property to |
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which section 71D below applied, and |
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(iii) | which, by the operation of section 71D(5)(a) below, |
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ceased on that occasion (“the 71D‑to‑71A occasion”) |
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to be property to which section 71D below applied, |
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| had become property to which section 71A above applies not |
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on the 71D‑to‑71A occasion but on the relevant earlier |
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(4) | In subsection (3)(d) above— |
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(a) | “the relevant earlier occasion” means the occasion (or last |
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occasion) before the 71D‑to‑71A occasion when the property |
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became property to which section 71D below applied, but |
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(b) | if the property, when it became property to which section |
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71D below applied, ceased at the same time to be property to |
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which section 71 above applied without ceasing to be settled |
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property, “the relevant earlier occasion” means the occasion |
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(or last occasion) when the property became property to |
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which section 71 above applied. |
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71C | Sections 71A and 71B: meaning of “bereaved minor” |
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In sections 71A and 71B above “bereaved minor” means a person— |
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(a) | who has not yet attained the age of 18, and |
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(b) | at least one of whose parents has died. |
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(1) | This section applies to settled property (including property settled |
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before 22nd March 2006), but subject to subsection (5) below, if— |
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(a) | the property is held on trusts for the benefit of a person who |
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has not yet attained the age of 25, |
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(b) | at least one of the person’s parents has died, and |
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(c) | subsection (2) below applies to the trusts. |
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(2) | This subsection applies to trusts— |
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(a) | established under the will of a deceased parent of the person |
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mentioned in subsection (1)(a) above, or |
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(b) | established under the Criminal Injuries Compensation |
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| which secure that the conditions in subsection (6) below are met. |
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(3) | Subsection (4) has effect where— |
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(a) | at any time on or after 22nd March 2006 but before 6th April |
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2008, or on the coming into force of paragraph 3(1) of |
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Schedule 20 to the Finance Act 2006, any property ceases to |
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be property to which section 71 above applies without |
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ceasing to be settled property, and |
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(b) | immediately after the property ceases to be property to which |
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section 71 above applies— |
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(i) | it is held on trusts for the benefit of a person who has |
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not yet attained the age of 25, and |
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(ii) | the trusts secure that the conditions in subsection (6) |
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(4) | From the time when the property ceases to be property to which |
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section 71 above applies, but subject to subsection (5) below, this |
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section applies to the property (if it would not apply to the property |
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by virtue of subsection (1) above) for so long as— |
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(a) | the property continues to be settled property held on trusts |
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such as are mentioned in subsection (3)(b)(i) above, and |
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(b) | the trusts continue to secure that the conditions in subsection |
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(5) | This section does not apply— |
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(a) | to property to which section 71A above applies, |
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(b) | to property to which section 71 above, or section 89 below, |
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(c) | to settled property if a person is beneficially entitled to an |
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interest in possession in the settled property and— |
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(i) | the person became beneficially entitled to the interest |
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in possession before 22nd March 2006, or |
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(ii) | the interest in possession is an immediate post-death |
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interest, or a transitional serial interest, and the |
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person became beneficially entitled to it on or after |
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(6) | Those conditions are— |
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(a) | that the person mentioned in subsection (1)(a) or (3)(b)(i) |
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above (“B”), if he has not done so before attaining the age of |
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25, will on attaining that age become absolutely entitled to— |
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(i) | the settled property, |
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(ii) | any income arising from it, and |
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(iii) | any income that has arisen from the property held on |
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the trusts for his benefit and been accumulated before |
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(b) | that, for so long as B is living and under the age of 25, if any |
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of the settled property is applied for the benefit of a |
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beneficiary, it is applied for the benefit of B, and |
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(c) | that, for so long as B is living and under the age of 25, either— |
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(i) | B is entitled to all of the income (if there is any) arising |
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from any of the settled property, or |
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(ii) | no such income may be applied for the benefit of any |
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(7) | For the purposes of this section, trusts are not to be treated as failing |
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to secure that the conditions in subsection (6) above are met by |
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(a) | the trustees’ having the powers conferred by section 32 of the |
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Trustee Act 1925 (powers of advancement), |
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(b) | the trustees’ having those powers but free from, or subject to |
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a less restrictive limitation than, the limitation imposed by |
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proviso (a) of subsection (1) of that section, |
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(c) | the trustees’ having the powers conferred by section 33 of the |
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Trustee Act (Northern Ireland) 1958 (corresponding |
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provision for Northern Ireland), |
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(d) | the trustees’ having those powers but free from, or subject to |
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a less restrictive limitation than, the limitation imposed by |
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subsection (1)(a) of that section, or |
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(e) | the trustees’ having powers to the like effect as the powers |
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mentioned in any of paragraphs (a) to (d) above. |
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(8) | In this section “the Criminal Injuries Compensation Scheme” |
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(a) | the schemes established by arrangements made under the |
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Criminal Injuries Compensation Act 1995, |
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(b) | arrangements made by the Secretary of State for |
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compensation for criminal injuries in operation before the |
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commencement of those schemes, and |
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(c) | the scheme established under the Criminal Injuries |
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Compensation (Northern Ireland) Order 2002. |
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(9) | The preceding provisions of this section apply in relation to |
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(a) | as if, in subsection (2) above, before “which” there were |
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inserted “the purposes of”, and |
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(b) | as if, in subsections (3)(b)(ii) and (4)(b) above, before “trusts” |
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there were inserted “purposes of the”. |
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71E | Charge to tax on property to which section 71D applies |
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(1) | Subject to subsections (2) to (4) below, there shall be a charge to tax |
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(a) | where settled property ceases to be property to which section |
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(b) | in a case where paragraph (a) above does not apply, where |
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the trustees make a disposition as a result of which the value |
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of the settled property to which section 71D above applies is |
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less than it would be but for the disposition. |
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(2) | Tax is not charged under this section where settled property ceases |
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to be property to which section 71D above applies as a result of— |
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(a) | B becoming, at or under the age of 18, absolutely entitled as |
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mentioned in section 71D(6)(a) above, |
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(b) | the death, under the age of 18, of B, |
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(c) | becoming, at a time when B is living and under the age of 18, |
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property to which section 71A above applies, or |
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(d) | being paid or applied for the advancement or benefit of B— |
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(i) | at a time when B is living and under the age of 18, or |
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(ii) | on B’s attaining the age of 18. |
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(3) | Tax is not charged under this section in respect of— |
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(a) | a payment of costs or expenses (so far as they are fairly |
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attributable to property to which section 71D above applies), |
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(b) | a payment which is (or will be) income of any person for any |
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of the purposes of income tax or would for any of those |
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purposes be income of a person not resident in the United |
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Kingdom if he were so resident, |
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| or in respect of a liability to make such a payment. |
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(4) | Tax is not charged under this section by virtue of subsection (1)(b) |
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above if the disposition is such that, were the trustees beneficially |
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entitled to the settled property, section 10 or section 16 above would |
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prevent the disposition from being a transfer of value. |
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(5) | For the purposes of this section the trustees shall be treated as |
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making a disposition if they omit to exercise a right (unless it is |
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shown that the omission was not deliberate) and the disposition shall |
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be treated as made at the time or latest time when they could have |
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71F | Calculation of tax charged under section 71E in certain cases |
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(a) | tax is charged under section 71E above by reason of the |
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happening of an event within subsection (2) below, and |
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(b) | that event happens after B has attained the age of 18, |
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| the tax is calculated in accordance with this section. |
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(a) | B becoming absolutely entitled as mentioned in section |
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(c) | property being paid or applied for the advancement or |
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(3) | The amount of the tax is given by—![equation: cross[cross[string["Chargeable amount"],string["Relevant fraction"]],string["Settlement rate"]]](missing.gif) |
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(4) | For the purposes of subsection (3) above, the “Chargeable amount” |
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(a) | the amount by which the value of property which is |
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comprised in the settlement and to which section 71D above |
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applies is less immediately after the event giving rise to the |
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charge than it would be but for the event, or |
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(b) | where the tax is payable out of settled property to which |
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section 71D above applies immediately after the event, the |
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amount which, after deducting the tax, is equal to the amount |
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on which tax would be charged by virtue of paragraph (a) |
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(5) | For the purposes of subsection (3) above, the “Relevant fraction” is |
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three tenths multiplied by so many fortieths as there are complete |
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successive quarters in the period— |
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(a) | beginning with the day on which B attained the age of 18 or, |
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if later, the day on which the property became property to |
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which section 71D above applies, and |
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(b) | ending with the day before the occasion of the charge. |
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(6) | Where the whole or part of the Chargeable amount is attributable to |
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property that was excluded property at any time during the period |
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mentioned in subsection (5) above then, in determining the |
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“Relevant fraction” in relation to that amount or part, no quarter |
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throughout which that property was excluded property shall be |
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(7) | For the purposes of subsection (3) above, the “Settlement rate” is the |
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effective rate (that is to say, the rate found by expressing the tax |
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chargeable as a percentage of the amount on which it is charged) at |
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which tax would be charged on the value transferred by a chargeable |
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transfer of the description specified in subsection (8) below. |
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(8) | The chargeable transfer postulated in subsection (7) above is one— |
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(a) | the value transferred by which is equal to an amount |
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determined in accordance with subsection (9) below, |
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(b) | which is made at the time of the charge to tax under section |
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71E above by a transferor who has in the period of seven |
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years ending with the day of the occasion of the charge made |
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chargeable transfers having an aggregate value equal to that |
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of any chargeable transfers made by the settlor in the period |
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of seven years ending with the day on which the settlement |
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commenced, disregarding transfers made on that day, and |
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(c) | on which tax is charged in accordance with section 7(2) |
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(9) | The amount referred to in subsection (8)(a) above is equal to the |
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(a) | the value, immediately after the settlement commenced, of |
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the property then comprised in it, |
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(b) | the value, immediately afer a related settlement commenced, |
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of the property then comprised in it, and |
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(c) | the value, immediately after it became comprised in the |
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settlement, of any property which became so comprised after |
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the settlement commenced and before the occasion of the |
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