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Matthew Hutton MA, CTA (fellow), AIIT, TEP, author of Capital Tax Review, comments on HMRC's latest guidance on Accumulation and Maintenance Trusts.

Matthew Hutton

Context

In the most recent HMRC guidance, in which the following was stated at para 1.7:

‘All the points above apply to section 71D trusts set up by Will and to accumulation and maintenance (‘A&M’) trusts which are converted to fall within s 71D before 6 April 2008 (or before a beneficiary has attained an interest in possession if earlier). Hence it will be necessary to ensure that any powers of appointment that are retained do not permit a beneficiary’s absolute share to be altered after he has reached 25 or defeated on reaching that age and if a power of appointment is exercised revocably it must not be capable of benefiting anyone who has been wholly excluded from benefit (even if under 25 and even if the exclusion was revocable)’.

The question is whether the presumptive shares in capital can be varied while the beneficiary is under age 25 (rather than, as in the case of a bereaved minor trust, 18).

Variation possible up to age 25

HMRC’s guidance certainly seems to be a concession from the strict wording of s 71D.  However, it has been confirmed that age 25 is the cut-off point.  The interesting point about income of course is that, given a subsisting accumulation period, it may well not have to be applied from age 18.  The latest update of Practical Trusts Precedents offers at A6a2 an appointment to convert an A&M settlement into an age 18–to-25 trust retaining full flexibility to vary shares and cross-apply income while the relevant beneficiary is under 25 ‘which is believed to be permitted in accordance with HMRC's current interpretation of s 71D’.

(Point made to me by Judith Morris of Bircham Dyson Bell LLP)

Comment

HMRCs guidance issued on 29 June 2007 seems rather more generous than is required by the strict statutory wording of s 71A and s 71D.  Against the risk that a court might apply the strict statutory wording in future (so turning what had been thought to be an s 71D trust into a relevant property trust), draftsmen may like to consider including the sort of ‘belt and braces’ clause familiar from A & M Trusts such that no power could be exercised so as to remove the trust fund from the statutory regime under s 71D (or, as the case may be, s 71A) – bearing in mind, however, that this restriction would typically apply only to administrative and not also to dispositive powers – which may rather limit its effectiveness in the circumstances in point.

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php

About the Author

Matthew Hutton is a non-practising solicitor (admitted 1979), who has specialised in tax for over 25 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30th September 2000, he now devotes his professional time to writing and lecturing.