TRUST TAXATION

Third Edition

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TRUST TAXATIONEMMA CHAMBERLAIN and

CHRIS WHITEHOUSE

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PREFACE TO THE THIRD EDITION

Three years have passed since the Second Edition and again change is the order of the day and has resulted in a substantial rewrite of the original text and an expansion of the book to 56 chapters. As before, a selection of prec-edents is included (in Appendix I); miscellaneous non-statutory material is in Appendix II and some sample IHT calculations in Appendix III.1

On the horizon is the prospect of a general anti-avoidance rule (“GAAR”). Even if introduced, it seems unlikely that this will result in any reduction of the mass (morass?) of tax legislation since specifi c anti-avoidance measures are unlikely to be repealed whilst lurking in the background is the increas-ingly nebulous “Ramsay principle”. Sadly the UK tax system suffers from a surfeit of detail often lacking any coherent principle. Two examples illustrate the problem: fi rst, the lack of consistency underpinning the tax treatment of trusts for disabled benefi ciaries2 and, second, the (hot-off-the-press) disguised remuneration legislation, a masterpiece of vague aspirations combined with detailed and wide-ranging rules setting out “the relevant steps” by virtue of which the unsuspecting taxpayer can be caught.3 “All relevant circumstances are to be taken into account in order to get to the essence of the matter”4 but the legislation is wide enough to catch those who are not intentionally avoiding tax and who may not know what the essence of the matter is or what relevant circumstances they need to consider.

How past generations of judges would despair of it all! Take, for instance, the famous statement of Rowlatt J. in the Cape Brandy Syndicate case5:

“It is urged . . . that in a taxing Act clear words are necessary in order to tax the subject. Too wide and fanciful a construction is often sought to be given to that maxim, which does not mean that words are to be unduly restricted against the Crown, or that there is to be any discrimination against the Crown in those Acts. It simply means that in a taxing Act one

1 Based on computations originally produced by Robert Jamieson updated by the authors: the faded popular music stars of the 50s and 60s have not been updated.

2 See Ch.36.3 Ch.49 Pity the owner of the family company who wants to know whether he can settle his

shares into trust for his children and give the daughter who works in the business a larger stake than the son who works elsewhere! The burden seems to be on the donor to prove that this is not a “relevant arrangement.”

4 ITEPA 2003 s.554A(12).5 Cape Brandy Syndicate v IRC [1921] 1 KB 64 affi rmed [1921] 2 KB 403.

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has to look merely at what is clearly said. There is no room for any intend-ment. There is no equity about a tax. There is no presumption as to a tax. nothing is to be read in, nothing is to be implied. One can only look fairly at the language used . . .”

Or, for a robust approach to the construction of statutory material, consider this from Lord Reid:

“On reading it [TA 1988 s.577(10)] my fi rst impression was that it is obscure to the point of unintelligibility and that impression has been con-fi rmed by the able and prolonged arguments which were submitted to us . . . I have suggested what may be a possible meaning, but if I am wrong about that I would not shrink from holding that the subsection is so obscure that no meaning can be given to it. I would rather do that than seek by twisting and contorting the words to give to the subsection an improbable meaning. Draftsmen as well as Homer can nod, and Parliament is so accustomed to obscure drafting in Finance Bills that no one may have noticed the defects in this subsection.”6

Of course, not all blame for the legislative mess can be laid at the door of successive governments which have been faced with the wholly unprincipled activities of the tax avoidance industry. When Treasury Minister, Dawn Primarolo, was want to talk of the need to fi ght fi re with fi re:

“Faced with such fi gures [of tax avoidance schemes], the Committee will not be surprised to hear that the Government decided to take action. It is not enough to tackle new arrangements and future avoidance. The Government wanted to send a clear message that artifi cial avoidance of that kind is not acceptable. Those who devise and market such schemes, and the people who take advantage of them, need to understand that and not assume that avoidance is risk-free. Such schemes have grown so rapidly because they are regarded as a one-way bet. The essential point is that nothing really changes. For example, let us consider somebody who wants to ensure that the house they live in is not part of their taxable estate, but they want to remain living there. They see their adviser, sign a series of papers and pay a substantial fee, even though there might be a relatively small amount of work in it. The client goes home, the paperwork is fi led and the arrangements are designed to unscramble when the client dies and have no lasting effect. The only real effect is inheritance tax savings that can run into thousands of thousands of pounds or more. Given that percep-tion of risk and rewards, it is not surprising that people and advisers have found such schemes increasingly attractive. The clause [introducing the POA charge] gives notice that that is a false perception.”7

More recently the Coalition Government published a Consultation Paper on High Risk Tax Avoidance Schemes8 envisaging the imposition of an addi-

6 Fleming v Associated Newspapers Ltd [1982] 2 All ER 574, HL.7 Hansard, Standing Committee Debates, May 28, 2004 col.238.8 In May 2011 discussed in Ch.56. The paper was heavily criticised in its underlying assumptions

by most of the professional bodies.

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tional fi nancial penalty equal to a percentage of the tax underpaid (as well as the “normal” penalties surcharges and interest!) on those using “a high risk tax avoidance scheme . . . a scheme that uses contrived arrangements to seek tax advantages in circumstances where they are not intended to be available . . .” In the meantime we have seen increased penalties of up to £1 million for those who fail to disclose reportable tax avoidance schemes and the extension of DOTAS to inheritance tax.

Trusts and settlements have unfortunately become a pawn in this battle: the concept of a trust has been stretched to breaking point with judges forced to grapple with fundamental issues such as what core principles must under-lie any valid trust.9 Symptomatic of the problems has been the astonishing growth of so-called Hasting-Bass/mistake claims10 resulting from either the settlor or his trustees falling foul of an unanticipated tax charge and seeking a get-out-of-gaol free card. Although the Court of Appeal has attempted to assert “traditional values” we have not heard the last of the matter since it surely cannot be right that a trustee who fails to take professional advice may be in a better position when things go wrong than one who has.

In some respects Lord Palmerston, with his adherence to gunboat diplomacy,11 is a model for British Governments of the 21st Century with their enthusiasm for foreign adventures. If only they would instead follow his lead in domestic affairs:

“there is really nothing to be done. We cannot go on adding to the Statute Book ad infi nitum. Perhaps we may have a little law reform; but we cannot go on legislating forever . . .”12

The authors are indebted to Andrew Strivens who is recovering well after reading (and commenting on) a goodly portion of the manuscript and to Elouise Dale, fi rst among legal secretaries, who has taken charge of the whole project and rewritten sections where necessary.

The law is stated at November 1, 2011.

EMCCJW

9 See Millett L.J. in Armitage v Nurse [1998] Ch 241: “(there is) an irreducible core of obligations owed by the trustees to the benefi ciaries and enforceable by them which is fundamental to the concept of a trust. If the benefi ciaries have no rights enforceable against the trustees there are no trusts” and see Ch.2 for a discussion of different foreign entities.

10 See 1.22.11 Notably in the affair of Don Pacifi co when Palmerston remarked “As the Roman, in days of old,

held himself free from indignity, when he could say ‘Civis Romanus sum’ [I am a Roman Citizen], so also a British subject, in whatever land he may be, shall feel confi dent that the watchful eye and the strong arm of England will protect him from injustice and wrong” (Hansard 3, 112, June 25, 1850, 444).

12 Quoted in Southgate “The Most English Minister” (1966, Macmillan) at p.528.

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CONTENTS

PART I: GENERAL

1. THE TRUSTAnatomy of a trust 1.01Trustees’ powers 1.09The settlor 1.14The trustees 1.15Sham trusts 1.18Taxation issues 1.20Hastings-Bass and mistake 1.22Accumulation and perpetuity issues 1.39

2. CATEGORISATION OF FOREIGN ENTITIES AND TRUSTSIntroduction 2.01Foundations 2.09Establishments 2.18US Grantor trusts 2.19Usufructs 2.29Delaware LLCs 2.29

3. RESIDENCE AND DOMICILE STATUS OF INDIVIDUALSIntroduction 3.01The current statutory rules 3.07Problems in determining residence status under current case

law 3.16HMRC practice and judicial review 3.38Ordinary residence 3.54Practical points for those wishing to become non-UK resident 3.63The proposed statutory residence test 3.67Domicile 3.87

4. RESIDENCE OF TRUSTEES AND COMPANIESTrustee residence 4.01Exporting UK trusts 4.13Importing a trust 4.40Corporate residence 4.43

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5. TAXATION OF NON RESIDENTS AND FOREIGN DOMICILIARIES—BASIC PRINCIPLES

Tax liability of non-residents 5.01Temporary non-residence 5.09Tax regime for foreign domiciliaries (including the remittance

basis charge; what is a remittance; currency gains; offshore trusts; situs; losses and 2011 consultation document) 5.21

PART II: INCOME TAX

6. INCOME TAX OF NON-SETTLOR-INTERESTED TRUSTS—UK RESIDENT

Defi nitions 6.01Taxation of trustees of fi xed interest trusts 6.06Taxation of the interest in possession benefi ciary 6.14Taxation of trustees of discretionary and accumulation trusts 6.29Taxation of discretionary benefi ciaries 6.37Tax on trustee distributions: the “tax pool” 6.42Trust management expenses (“TMEs”) 6.47Capital receipts taxed as income 6.57Supplementing income with capital 6.64TA 1925 s.31 6.69

7. INCOME TAX AND CGT ISSUES ARISING IN RELATION TO SETTLOR-INTERESTED UK RESIDENT TRUSTS

General points 7.01Settlements in which the settlor retains an interest for income

tax purposes 7.03Payments to minor unmarried children of the settlor 7.38Receipt of capital benefi ts 7.43Capital gains tax 7.50The scope of the settlements legislation—recent case law 7.65Making a trust non-settlor-interested—points to watch 7.81

8. INCOME TAX OF NON-RESIDENT TRUSTS—THE FOREIGN DIMENSION

Settlor-interested trusts 8.01Non-settlor-interested offshore structures 8.38Summary of how provisions operate for foreign domiciled

settlors and benefi ciaries 8.62

PART III: CAPITAL GAINS TAX

9. CGT DEFINITIONS“Settled property” 9.02Meaning of absolute entitlement 9.09The defi nition of settlor including multiple settlors, corporate

settlors, resettlements and post-death variations 9.23Single or multiple settlements 9.39

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Defi nition of trustees 9.46Disposals 9.49

10. CGT ON CREATION OF A SETTLEMENTDisposals to trustees 10.01Hold-over relief 10.03Instalment option and double charges 10.06Rates of tax on transfers into trust on or after April 6, 2008

and the effect of the 2010 changes 10.09

11. ACTUAL DISPOSALSOverview 11.01Rates and payment of CGT—the old and new regimes; settlor-

interested trusts 11.03Exemptions and reliefs including losses 11.08The CGT regime from April 6, 2008 11.14Avoidance issues 11.33

12. DEEMED DISPOSALS OF TRUSTEESGeneral principles 12.01Benefi ciary becoming absolutely entitled 12.05Death of a qualifying interest in possession benefi ciary 12.12Resettlements 12.21Variation of settlements and change of governing law 12.26“Anti fl ip-fl op” legislation 12.40Sub-fund elections 12.42

13. ROLL-OVER RELIEFBasic conditions 13.01Computation of the gain 13.11Claiming the relief 13.12The effect of the changes in April 2008 13.16Relevance of roll-over relief to trustees 13.19

14. ENTREPRENEURS’ RELIEFBasic principles 14.01The rules in detail 14.11Trust disposals 14.23Offshore issues 14.37Entrepreneurs’ relief and personal representatives (PRs) 14.39Comparison of business assets taper relief and entrepreneurs’

relief 14.40

15. INCORPORATION RELIEFBasic principles 15.01Tax planning opportunities 15.05Election to disapply relief 15.08Interaction with other reliefs 15.11

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16. ENTERPRISE INVESTMENT SCHEME (EIS) DEFERRAL RELIEF

The scope of the relief 16.01Qualifying conditions 16.10EIS relief and trusts 16.14Transitional provisions—interaction with entrepreneurs’ relief 16.18

17. SHARE SALES AND DEFERRED CONSIDERATION; EARN-OUTS; SHARE BUY-BACKS; PRIORITY OF RELIEFS

Introduction 17.01Share exchanges 17.04Sales of shares for ascertainable consideration in cash 17.08Sale for deferred consideration in shares or loan notes 17.10Earn-outs 17.25Share buy-backs 17.34Conclusions and comments on priority of reliefs 17.40

18. CGT HOLD-OVER RELIEFBackground 18.01Gifts of business assets (s.165 relief) 18.20Gifts subject to an immediate IHT charge (s.260 relief) 18.48Disposals to a settlor-interested trust 18.61Payment of tax by instalments on gifts and sales at an

undervalue 18.67Principal private residence relief and s.260 hold-over 18.71Double charges: relief for IHT against CGT 18.76Tax planning and hold-over relief 18.78

19. OFFSHORE TRUSTSBackground 19.01UK domiciled and resident settlors 19.13Foreign domiciled settlors 19.26Taxation of UK resident and domiciled benefi ciaries 19.27Taxation of foreign domiciled UK resident benefi ciaries 19.49Anti “fl ip-fl op” legislation and Schs 4B and 4C 19.69Information requirements for offshore trusts 19.79Conclusions 19.80

20. THE DISPOSAL OF A BENEFICIAL INTERESTThe basic rule 20.01Disposal of an interest in a non-UK resident settlement or in

a settlement which was at any time non-resident or which has received property from such a settlement 20.06

Sale of an interest in a settlor-interested trust 20.19Tax planning issues 20.29

21. LOSS RELIEFBasic principles 21.01Anti-avoidance 21.07Losses of UK resident settlor-interested trusts 21.12Loss relief when a benefi ciary becomes absolutely entitled 21.21

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Other restrictions on set-off of UK resident trust losses 21.26Offshore trusts and losses 21.28Losses of offshore trusts within s.86 21.34Losses in an underlying offshore company 21.38

PART IV: INHERITANCE TAX

22. INHERITANCE TAX, RESERVATION OF BENEFIT AND PRE-OWNED ASSETS INCOME TAX—AN INTRODUCTION

Potentially exempt transfers (PETs) 22.02Gifts from companies 22.06The charge on death 22.08Reservation of benefi t 22.10Ingram and Eversden 22.17Application of the reservation of benefi t provisions generally 22.21Avoiding the reservation of benefi t rules 22.30Impact of the pre-owned assets charge 22.38

23. THE 2006 IHT RULES—AN OVERVIEWBackground to the changes 23.02The IHT treatment of settlements set up on and after March

22, 2006 23.08Exceptional cases: new settlements which are not taxed under

the relevant property regime 23.12Will drafting options 23.19Existing settlements 23.25Comments and conclusions 23.31

24. IHT DEFINITIONS AND CLASSIFICATIONSMeaning of “settlement” and related terms 24.01When is there a disposition creating a settlement? 24.11Who is the settlor? 24.18Additions by the settlor including loans to trusts and the

implications of borrowing by interest in possession trusts 24.26Classifi cation of settlements 24.35

25. CREATION OF SETTLEMENTSBackground 25.01Charge to tax in respect of settlements created on or after

March 22, 2006 25.02 Reservation of benefi t on setting up a trust 25.06Impact of the pre-owned assets charge 25.10The importance of the 2006 changes 25.11

26. THE TAX TREATMENT OF QUALIFYING AND NON-QUALIFYING INTERESTS IN POSSESSION AND REVERSIONARY INTERESTS INCLUDING VALUATION ISSUES, LEASES, RELIEFS, MELVILLE SCHEMES AND SALES

Background 26.01

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IHT treatment of a benefi ciary entitled to a qualifying IIP 26.03The meaning of a reversionary interest 26.04The nature of a non-qualifying IIP 26.05Sales of interests in possession before FA 2010 26.06Consequences of the s.49(1) fi ction and how to value joint

interests in possession 26.17Benefi ciary entitled to a fi xed income (including an annuitant) 26.23Lease treated as a settlement 26.24When IHT is charged 26.25Exemptions and reliefs 26.32Taxation of reversionary interests 26.42

27. WHEN IHT IS CHARGED ON QUALIFYING INTEREST IN POSSESSION TRUSTS (INCLUDING TRANSITIONAL RELIEF)

Overview 27.01How the rules operated before March 22, 2006 27.05The charging regime after March 21, 2006 27.14Transitional serial interests (TSIs) 27.15

28. IMMEDIATE POST-DEATH INTERESTS AND OTHER QUALIFYING INTERESTS IN POSSESSION

Meaning of qualifying interest in possession after FA 2006 28.02Immediate post-death interests (IPDIs) 28.10 Other qualifying interests 28.23

29. TAXATION OF RELEVANT PROPERTY SETTLEMENTSOverview 29.01Creation of the settlement 29.05Exit charges before the fi rst 10-year anniversary 29.07Charge on the fi rst 10-year anniversary 29.13Exit charges between anniversaries 29.18Later periodic charges 29.19Technical problems and planning 29.20Discretionary trusts created before March 27, 1974 29.32Exemptions and reliefs 29.36

30. ACCUMULATION AND MAINTENANCE (A-M) TRUSTSBackground 30.01Tax treatment of A-M trusts before March 22, 2006 30.05Tax treatment of s.71 A-M trusts after March 21, 2006 30.19Concluding remarks 30.35

31. EXCLUDED PROPERTY, FOREIGN IHT ISSUES AND NON-DOMICILIARIES

Basics 31.01Treaty relief 31.05Exemptions for excluded property 31.16IHTA 1984 ss.80–82 traps 31.27Additions of property to an existing settlement 31.32Reservation of benefi t issues 31.44

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Powers of appointment over settled property including general powers 31.50

Reversionary interests 31.57Purchased interests in excluded property settlements 31.66Pre-owned assets income tax: problems for foreign domiciliaries 31.72Accommodation arrangements 31.73

32. LIABILITIESThe basic rules 32.01What liabilities are deductible (including guarantees)? 32.02Liabilities and excluded property including situs of debts 32.07Liabilities and interest in possession trusts 32.16Liabilities and reserved benefi t property 32.21Foreign domiciliaries and liabilities––maximising the excluded

property 32.24The artifi cial debt rule in FA 1986 s.103 32.27Foreign domiciled settlors and FA 1986 s.103 32.35Loans by settlors to trusts and reservation of benefi t problems 32.43Liabilities in the context of business and agricultural property 32.46

33. RESERVATION OF BENEFIT AND SETTLED PROPERTYBackground 33.01The meaning of “gift” 33.03The carve-out concept in relation to settlements 33.05 Extension of “gift” to termination of a qualifying interest in

possession 33.18Settled gifts––tracing provisions 33.29

34. PRE-OWNED ASSETS INCOME TAX REGIMEThe purpose of the charge 34.01The charge in outline 34.06Land and chattels 34.09Exclusions (para.10) 34.11Settled intangibles (paras 8–9) 34.14Exemptions; the effect of s.80 FA 2006 and excluded liabilities 34.18Non-domiciliaries 34.27Electing into GWR 34.40

PART V: SPECIALIST TOPICS

35. TRUSTS FOR MINORS AND FOR OLDER CHILDRENLifetime options 35.03Providing for children and minors by will including priority of

trusts 35.12Bereaved Minor Trusts (BMTs) including comparison with

A-M trusts and pecking order 35.1718–25 (s.71D) Trusts; relationship with IPDIs and other trusts;

interaction with s.144 35.35Other death options 35.56

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36. TRUSTS FOR VULNERABLE AND DISABLED BENEFICIARIES

Background matters 36.01Income tax rules 36.06CGT treatment 36.22Inheritance tax: disabled trusts under s.89 36.30IHT: “disabled persons’ trusts” after March 21, 2006 36.42Dispositions for the maintenance of family including a

dependent relative 36.56

37. REVERTER TO SETTLOR TRUSTSTax treatment of a revertor to settler trust before the FA 2006

changes 37.02The IHT position from March 22, 2006 37.19The POA position from December 5, 2005 37.28Comments and conclusions 37.34

38. TAX EFFICIENT WILL DRAFTINGUse of IHT nil rate band before October 9, 2007 38.02The transferable nil rate band 38.08Impact on drafting of IHT effi cient wills 38.17The Nil Rate Band Discretionary Trust 38.24BPR/APR and nil rate gifts 38.46Dealing with residue with surviving spouse 38.49Dealing with residue—no surviving spouse 38.56Wills for cohabitees 38.57Proposed changes for charitable legacies 38.59

39. DEEDS OF VARIATION, DISCLAIMERS AND OTHER POST-DEATH REARRANGEMENTS

Variations: inheritance tax treatment 39.04Variations: CGT treatment 39.33Variations: income tax 39.41Variations: impact of the POA charge 39.44Variations: stamp duty and SDLT 39.45Disclaimers 39.47Section 144: discretionary will trusts 39.55

40. CAPITAL TAX ISSUES FOR PERSONAL REPRESENTATIVES

General 40.01Valuation of assets at death 40.07CGT losses of the deceased 40.12Sales by PRs 40.13Losses of the PRs 40.19Transfers to legatees 40.20

41. PILOT TRUSTSWhat is a pilot trust? 41.02Related settlements 41.04The attraction of pilot trusts 41.06

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Adding property 41.07Merging the trusts 41.16Typical uses of pilot trusts 41.17Miscellaneous technical points and traps 41.25

42. BARE TRUSTSGeneral points 42.01Uses 42.04Taxation of a bare trust 42.06Deferring absolute entitlement 42.16

43. TRUSTS AND HOUSES: CAPITAL GAINS TAX AND INHERITANCE TAX CONSIDERATIONS

Capital gains tax—principal private residence relief 43.01Inheritance tax planning: some general considerations 43.29The fate of past schemes 43.37Current planning options—carve-out schemes including

reversionary lease schemes 43.85Co-ownership/sharing arrangements (including let property) 43.94Cash gifts 43.116Selling the family home 43.126Foreign domiciliaries and the family home—inheritance tax

and capital gains tax considerations 43.137

44. CHATTEL SCHEMESChattel arrangements 44.01Foreign domiciliaries and chattel schemes 44.17

45. BUSINESSES: BPROverview 45.01Relevant business property 45.08Restrictions on BPR 45.12What must be transferred? 45.35The value of the business 45.37How the reliefs work for settled property 45.48Application of the reservation of benefi t rules 45.66Impact of the pre-owned assets charge 45.73

46. FARMS: AGRICULTURAL PROPERTY RELIEFBasics of the relief 46.01“Agricultural value” and liabilities 46.06The “character appropriate” test 46.13What is a farmhouse? 46.20When is agricultural property “occupied for the purposes of

agriculture”? 46.22Getting 100 per cent relief on let property 46.24Planning points 46.25

47. LIFE POLICIES AND OTHER INSURANCE PRODUCTS HELD IN TRUST

Background 47.01

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Existing trusts 47.03Family protection policies 47.13Loan trusts 47.21Discounted gift plans (DGPs) 47.23Flexible reversionary trusts 47.34The chargeable event legislation 47.39

48. PENSION ARRANGEMENTSBackground 48.01Pension trusts and IHT 48.15Lifetime IHT issues 48.26ABI Guidance 48.48

49. EMPLOYEE BENEFIT TRUSTSBackground—general tax treatment before December 9, 2010 49.01Defi nition of an EBT 49.16Exit charges when property ceases to be comprised in an

EBT 49.33Entry charges—general 49.36Relief for dispositions by a close company 49.44Relief for dispositions by individuals 49.53Business and agricultural property relief 49.56Disguised remuneration—position from December 9, 2010 49.59

50. TRUSTS AND DIVORCEClaiming trust assets on a divorce 50.03Nuptial settlements 50.04Trusts as a fi nancial resource 50.19Pre- and post-nuptial agreements 50.24Inherited and pre-marital wealth 50.34Anti-alimony and no contest clauses 50.38Tax position on divorce 50.41Trusts and remittance issues for foreign domiciliaries 50.54

51. STAMP DUTY LAND TAX AND STAMP DUTYStamp Duty Land Tax––an overview 51.01Typical transactions encountered by trustees 51.09Stamp Duty 51.24

52. PARTNERSHIP STRUCTURESIntroduction 52.01Tax treatment of partnerships 52.17

53. OFFSHORE INCOME GAINSIntroduction 53.01What is an offshore fund? 53.04Taxation of offshore non-reporting funds (OIGs) 53.08Taxation of UK resident trusts 53.14Non-resident trusts 53.17

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54. TAXATION OF NON-RESIDENT COMPANIESIntroduction 54.01Taxation of an individual owning an interest in an offshore

company 54.04Trustees owning non-resident companies 54.24Summary of tax advantages and disadvantages of

incorporation 54.34

55. CHECKLIST FOR PRIVATE CLIENTS AND TRUSTS: PLANNING IDEAS

Points to consider when fi rst receiving instructions in relation to an existing trust 55.02

Points to consider when advising foreign domiciliaries (including rental properties) 55.22

Capital gains tax regime for benefi ciaries receiving capital payments from offshore trusts 55.33

CGT and offshore trusts generally 55.40Importing an offshore trust 55.45Residence—emigration and immigration 55.50Advantages and disadvantages of holding assets through an

offshore holding company 55.64Tax issues to consider on setting up a settlement 55.65Making capital distributions to benefi ciaries/hold-over relief/

absolute entitlement at specifi ed age such as 25 55.70Resettlements vs variations 55.82Business reliefs and use of trusts 55.90Private residence relief—CGT 55.108Disposals of benefi cial interests in trusts 55.113Losses 55.118Lifetime inheritance tax planning—avoiding reservation of

benefi t 55.119Death bed planning 55.123Minimising charges under the relevant property regime 55.130Will drafting 55.131Excluding the settlor from settlor-interested trusts—traps to

watch 55.136

56. DISCLOSURE, COMPLIANCE, REPORTING AND ENFORCEMENT OF TAX LIABILITIES

HMRC’s approach to tax schemes 56.01How DOTAS works in relation to direct taxes other than IHT 56.10DOTAS and IHT 56.32Reporting transfers into and out of trusts 56.43Excepted estates 56.61Inheritance tax and the penalty regime—liability and reporting 56.65Jurisdiction and enforcement issues against non-resident

trustees 56.82

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APPENDICES

APPENDIX IPART I: SETTLEMENTSA1.1 Pilot discretionary trustA1.2 Bare trustA1.3 Disabled person’s trustA1.4 Employee benefi t trustA1.5 Spousal by-pass trust for pension death benefi t

PART II: WILL TRUSTS AND VARIATIONSA1.6 Bereaved minor trustA1.7 18–25 trust (s.71D) A1.8 Will clauses creating NRBDT and an IPDI trust of residueA1.9 Debt/Charge documentation after deathA1.10 IPDI trust of residue for minor children of the testator with

substitution in the case of a pre-deceasing child leaving issueA1.11 Deed of Variation (a) severing benefi cial joint tenancy and (b)

creating a nil rate band discretionary trust with debt/charge provisions

A1.12 Disclaimer of a life interest where life tenant has died within two years of the deceased

A1.13 Revocable appointment of IPDI out of a two-year discretionary trust

A1.14 Clause leaving property to pilot (lifetime trust)A1.15 Clause for NRB legacy including business propertyA1.16 Draft clause leaving charitable legacy to maximise inheritance

tax reliefA1.17 Clause conferring general power of appointment for life

tenant over IPDI trust

PART III: SUBSIDIARY DOCUMENTSA1.18 Deed appointing property to benefi ciary absolutelyA1.19 Appointing a non-qualifying revocable interest in possession

in a discretionary trustA1.20 Resettlement of funds from discretionary trust on new trustsA1.21 Settled advance creating life interest / power to advance capitalA1.22 Clause excluding dependant children from the defi nition of

“benefi ciaries”A1.23 Appropriation by PRs in favour of charity on bare trusts

APPENDIX II HMRC Material

APPENDIX III Computation

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GLOSSARY

AEA 1925 Administration of Estates Act 1925CA 1985, 2006 Companies Act 1985, 2006CGTA 1979 Capital Gains Tax Act 1979CPA 2004 Civil Partnership Act 2004CRGA 2010 Constitutional Reform and Governance Act 2010CTA 2009, 2010 Corporation Tax Act 2009, 2010FA 0000 Finance Act 0000FLRA 1969, 1987 Family Law Reform Act 1969, 1987FSMA 2000 Financial Services and Markets Act 2000IA 1986 Insolvency Act 1986ICTA 1988 Income and Corporation Taxes Act 1988IHTA 1984 Inheritance Tax Act 1984IPFDA 1975 Inheritance (Provision for Family and Dependants) Act

1975ITA 2007 Income Tax Act 2007ITEPA 2003 Income Tax (Earnings and Pensions) Act 2003ITTOIA 2005 Income Tax (Trading and Other Income) Act 2005LPA 1925 Law of Property Act 1925MHA 1983, 2007 Mental Health Act 1983, 2007PAA 1964, 2009 Perpetuities and Accumulation Act 1964, 2009RTA 1987 Recognition of Trusts Act 1987TA 1988 Taxes Act 1988TA 1925, 2000 Trustee Act 1925, 2000TCGA 1992 Taxation of Chargeable Gains Act 1992TIOPA 2010 Taxation (International and Other Provisions) Act 2010 TMA 1970 Taxes Management Act 1970TOLATA 1996 Trusts of Land and Appointment of Trustees Act 1996VTA 1958 Variation of Trusts Act 1958WA 1837 Wills Act 1837

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