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Where Taxpayers and Advisers Meet

Declaring Distribution Out of IIP Trust

jokerman
Posts: 8
Joined: Fri Dec 22, 2017 9:26 pm

Declaring Distribution Out of IIP Trust

Postby jokerman » Thu Nov 08, 2018 8:20 am

Hello - hope somebody can help with my question...

I am a trustee of an IIP Trust. The only assets in trust at one point last year were unquoted shares which were BPR qualifying. The trustees made an appointment out of trust for some of these shares - transferring them to the trust beneficiaries.

Do I need to declare this appointment out of trust? What form(s) do I use? Much of the guidance I've found seems to relate to Discretionary Trusts and not IIP.

Thanks in advance.

AGoodman
Posts: 521
Joined: Fri May 16, 2014 3:47 pm

Re: Declaring Distribution Out of IIP Trust

Postby AGoodman » Thu Nov 08, 2018 11:44 am

First step is to check whether it is a relevant property trust or not. This is not as easy as it once was.

If the trust was established in the settlor's lifetime and after 2006, chances are it is a relevant property trust. If the interest in possession was created by will, it will likely be an Immediate Post Death Interest (IPDI) and so not relevant property.

If the trust is not relevant property, then it should not be necessary to declare the capital distribution for IHT purposes. However, as the beneficiary has become absolutely entitled, any gain will be subject to CGT (subject to you claiming business property holdover relief). If there is a gain, you will either have to file a return or claim relief (possibly both).

If it is a relevant property trust, you might be best placed getting advice, it can be very complicated. The position will depend on the value of the trust, its age (more or less than 10 years) and whether there is an IHT exit charge payable. IHT returns may be necessary even if no tax is payable.

jokerman
Posts: 8
Joined: Fri Dec 22, 2017 9:26 pm

Re: Declaring Distribution Out of IIP Trust

Postby jokerman » Thu Nov 08, 2018 11:32 pm

Thanks for your reply. With the knowledge that this is probably a relevent property trust I then found some more usefu information on the HMRC site. It certainly seems complicated! In my case:

The trust is not yet ten years old (it is nearly nine years old);
It is an IIP trust set up during the settlors lifetime;
The only assets were unlisted shares at the time of the distribution of trust assets;
Less than 80% of the nil-rate band was distributed;

Based on that, my reading of this is that we are subject to the 'proportionate charge' rules but we also fall into the excepted settlement rules so are not obliged to notify HMRC.

Does that sound like a reasonable conclusion?

AGoodman
Posts: 521
Joined: Fri May 16, 2014 3:47 pm

Re: Declaring Distribution Out of IIP Trust

Postby AGoodman » Fri Nov 09, 2018 1:32 pm

You are getting there but the key value is not the value of the distribution.

The 80% limit is tied to the aggregate value of the sums originally settled plus the value of any chargeable transfers made by the settlor in the seven years prior to funding the trust.

A chargeable transfer is any (non-exempt) transfer of value which is not made to an individual - so most transfers into trust are now chargeable transfers.

If it was his first trust and he put assets of less than £260k into the trust then it may well be an excepted settlement and no need to file an account.

AGoodman
Posts: 521
Joined: Fri May 16, 2014 3:47 pm

Re: Declaring Distribution Out of IIP Trust

Postby AGoodman » Fri Nov 09, 2018 1:35 pm

and I should add that the distribution is still a disposal for CGT. Holdover relief may apply under s.260 (which includes most distributions from a relevant property trust) or s.165 (business property). Both have to be claimed.

jokerman
Posts: 8
Joined: Fri Dec 22, 2017 9:26 pm

Re: Declaring Distribution Out of IIP Trust

Postby jokerman » Tue Nov 13, 2018 12:17 am

Thanks again and please bear with me while I try and understand this!

When you say: "Both have to be claimed" ...both of what? On the Holdover Relief Claim form it seems to suggest that you only claim under one section. And if you claim under the s165 you are asserting that you didn't qualify under s.260

So now I'm confused about this: The transfer to the beneficiaries is, I think, a chargeable transfer but not a PET. So this is a s.260 thing. There is also a question saying: "the disposal was exempt from Inheritance Tax under IHTA Section......" - do I need to complete that? I think it is exempt because the shares are unlisted but can't find any IHTA sections to choose from to fill that in?

s.165 seems easier because I could just tick the box saying unquoted shares but then I'd need to say that I don't qualify under s 260.

I'm going to try doing the IHT100 form. Are you able to help me ascertain which. is the correct event form? form 'a' seems to be relevant because it's a transfer of value, and 'c' because a proportionate charge is due. Which would be used in this case? The Trust is an IIP trust but the appointment of shares out of trust is discretionary. We don't anticipate any IHT charges as the shares qualify for BPR.

Thanks.

AGoodman
Posts: 521
Joined: Fri May 16, 2014 3:47 pm

Re: Declaring Distribution Out of IIP Trust

Postby AGoodman » Wed Nov 14, 2018 5:58 pm

I meant that whichever you want to use must be claimed. Here, it sounds like s.260.

It is a chargeable transfer for this purpose. Not exempt.

Use form IHT100c (ignore the reference to discretionary trusts - this is a misnomer). You will need to claim BPR in the IHT100 and complete D32 and D38 for BPR.

Do consider again getting proper advice to confirm it is a relevant property trust and check other points you might not have considered - e.g. signing up to the trust register.


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