Bare Trusts and whether they are a settlment for IHT purposes

[Arnold Aaron]

Would the forum agree that Bare Trusts are not deemed a settlement for IHT purposes? (excluding minor beneficiaries)

Reason I ask is that a firm of accountants with whom I am dealing, are not satisfied that this is indeed the case. I am thinking of Discounted Gift Bare Trusts in particular. I am aware that a senior Tax Counsel has said in his confident opinion that a gift to a Bare Trust is not a chargeable lifetime transfer.

Just wondering what the concensus here is.

Many thanks.

[King_Maker]

That is my initial understanding.

I thought HMRC were only considering a Bare Trust might be a settlement in relation to minor beneficaries?

[maths]

Bare trusts not a settlement for IHT. Gifts thereto are PETs.

HMRC are seeking to argue some bare trusts are A & M settlements. As King Maker states only re minors.

[Arnold Aaron]

Does anyone have a copy of correspondence on HMRC headed paper that this is indeed the case?

Any suggestions where I could obtain such a document?

Thank you.

[bob.fraser@towrylaw.]

The issue centres on the interpretation of IHTA 1984 s43(2).
HMRC's legal advisors have suggested if s31(2) of the Trustee Act applies, then the trust could be deemed to be a settlement as it accumulates income.
Furthermore, they argue that as a minor lacks legal capacity, (s)he cannot require income to be paid to them, so it would then be accumulated.
HMRC have thus stated that their guidance is that bare trusts for minors are in fact chargeable lifetime transfers. However, they have also said that this is not yet their final judgement.
If you want a formal document, get hold of ABI circular TDG 1/07.

Bob Fraser
Chartered Financial Planner

[Geoff D]

Arnold - try the HMRC website for confirmation that in their view an absolute trust for a minor is not a settlement for IHT purposes.

[Arnold Aaron]

Found the answer to my own question...



http://www.step.org/showarticle.pl?id=1826

[bob.fraser@towrylaw.]

There is an update on the ABI website notifying that they have had a statement from HMRC saying that following legal advice it is confirmed that bare trusts for minors are not a settlement. The wording of the ABI circular is as follows:

'During the discussions with HMRC on the inheritance tax changes to trusts in the 2006 Finance Act a difference of view arose on whether a minor can benefit from a bare trust. On obtaining further legal advice HMRC have now confirmed that they agree that a minor can have a bare trust. This means it is not a settlement for the purposes of inheritance tax. The ABI welcomes this clarification, which is in line with the view always held by the insurance industry.'

Good news.

Bob Fraser
Chartered & Certified Financial Planner