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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

 

 

 
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