Bare Trust to Relevant Property Trust

[benjam1n]

I was on a seminar presented by Chris Whitehouse & Emma Chamberlain last month in Leeds

Whilst Emma was speaking in the afternoon she touched on something I think may now be relevant tax planning for a client

She said to consider a grandparent settling a Bare Trust (BT) for the benefit of the grandchildren, and at 18, appointing the asset to a Relevant Property Trust (RPT)

Can this be done? Or, had I misheard Emma or missed the point she was making?

I understand the transfer to the BT would be a PET. The beneficiary would own the asset for IHT/CGT/IT, just not the legal title. As I understood, the trustee has no power over the capital, so how can the property go to a RPT?

The course notes just advise "Consider use of BTs for minors, retaining wide power of advancement"

If possible this sounds to me, like old IIPs (now QIIPs). Gifts to which were PETs, the property would be settled property in the estate of the beneficiary, if then appointed the appointment was a PET (or CLT if to DT) made by the life tenant (albeit if to DT, then the initial settlors CLT in the 7 years pre creation would be relevant for exit and principal charges).

Confused.

If it is possible would people agree S80 and S61 would apply? i.e. S61 = initial date of BT settlement is relevant in computing principal and exit charges from the subsequent RPT and S80 uses the grandparents CLTs in the 7 years pre creation of the BT.

Does anyone have any thoughts?

Cheers

Ben

[benjam1n]

*S81 .... Not S80

[maths]

Tricky !

It is possible to include in the terms of a bare trust a power of advancement under which for example the trustees (prior to the beneficiary attaining age 18) may appoint the capital on a substantive trust (in the absence of such a specific such provision TA 1925 s 32 would apply).

The substantive trust qualifies as a RPT.

However, I would suggest that the 10 year time period commences when the RPT is created not when the BT is created. IHTA 1984 s 60 is relevant and refers to the date "when property first becomes comprised [in the] settlement". For IHT a BT is not a "settlement".

As to how the 10 year charge is calculated requires identification of the settlor. The bare trustees cannot be the settlor and the beneficiary does nothing as it is the trustees that utilise the power of advancement. Prima facie, the gparents are the settlors although I'm not entirely convinced of this because for income tax and CGT it is the beneficiary who is the settlor.

S81 is not in point as this refers to movement between "settlements".

[benjam1n]

Great explanation, thank you.

I would be quite content in my thoughts with the beneficiary being the Settlor for CGT/IT - as on a separate point, where a DOV has been exercised to redirect inherited property to a RPT, if the initial legatee can also benefit from that RPT then they are the settlor for IT purposes ... I recall various examples of settlements that have different settlors back at FT ...

Based on your indications then, in computing the subsequent RPTs principal and exit charges, the GPs CLTs in the 7 years prior to the transfer from the BT to RPT will be relevant .... even though this 7 years pre the RPT may be sometime after the death of the GPs