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GAZETTE
SEPTEMBER 1987
thereby become " en t i t l ed in
possession" to a "benefit" and ac-
cordingly take no inheritance:
in re
Traf ford's Settlement
Trusts
[1984] STC 236. The conse-
quence is that no inheritance tax is
payable on the death of a potential
object of a discretionary trust. By
its very nature, a discretionary trust
enables capital acquisitions tax to
be held at bay until such time as
the trustees decide to exercise
their discretion. It is in order to
remedy this deficiency in the
capital acquisitions tax legislation
that the Legislature has enacted
ss. 104 to 109 FA 1984 and the ad-
ditional provisions in ss. 102 to
108 FA 1986.
Referring to these now in
chronological order:-
S.106(1)FA 1984
S. 106(1 )FA 1984 provides that
when "property" becomes "sub-
ject t o" a "discretionary trust" (as
defined in s.104) the trust itself is
to be deemed to have taken an in-
heritance on the latest of the
following three dates:-
(a) t he date upon which the pro-
perty became subject to the
discretionary trust, or
( b ) t he date of the disponer's
death, or
(c ) the date on which there ceases
to be a "principal object" of
the trust who is under the age
of 25 years.
The latest to occur of these
dates is referred to as "the date of
the inheritance": s. 106(1). Proper-
ty subject to the trust on that date
is subject to a once-off inheritance
tax at a flat rate of 3%: s.109.
At first sight s. 106( 1) appears to
be relatively straightforward. Fur-
ther inquiry shows that this is not
so, "the date of the inheritance"
depending to a very great extent on
who is the "disponer" in relation to
the trust. As the examples set out
below will demonstrate, identifica-
tion of the "disponer" in relation to
a particular discretionary trust can
be a matter of some difficulty and
it by no means follows that the set-
tlor named in the trust instrument
is the "disponer" in relation to the
trust thereby created.
The three dates mentioned in
paras, (a) (b) and (c) of s. 106(1)
above are each the subject of
extensive statutory and judicial
exposition:-
Paragraph (a)
Property which "became sub-
ject" to a discretionary trust before
25 January 1984 is "deemed to
have become subject to the trust
on that date"; s. 106(2). Such pro-
perty does not escape the levy of
inheritance tax under s. 106(1)
merely by having become subject
to a discretionary trust before that
date.
Paragraph (b)
The "disponer" referred to in
s. 106(1 )(b) is clearly the disponer
"under or in consequence" of
whose "disposition" the property
became subject to the dis-
cretionary trust. S.2(1) CATA
1976 defines the word "disponer"
as the person "who, for the pur-
poses of the disposition, directly or
indirectly provided the property
comprised in the disposition".
This definition, which is based on
the UK income tax legislation
relating to settlements, is effective-
ly no different from that in s.2 SDA
1853, which defined the equivalent
expression "predecessor" in the
former succession duty legislation
as "the person from whom the in-
terest of the successor is or shall
be derived". Case law is plentiful,
both in relation to the UK income
tax legislation upon which the
definition of "disponer" in s.2(1)
CATA 1976 is based and in relation
to the definition of the correspon-
ding word "predecessor" in the
former succession duty legislation.
Used with discretion, it provides
valuable guidance in identifying the
"disponer" in relation to a par-
ticular discretionary trust.
Example (1)
A gives shares in a family com-
pany to his step-daughter B, the
market value of which amounts to
£100,000. B subsequently an-
nounces her engagement to C,
who is employed by a competitor.
A therefore asks B to transfer her
shares to her (B's) brother D, who
is employed by the company,
assuring her (B) that she need not
be disappointed because he (A) will
shortly do far better for her. She
accordingly transfers her shares in
the family company to D,
whereupon A settles investments
having a value of £200,000 upon
discretionary trusts for the benefit
of B and her children. A and not B
is the "disponer" in relation to the
trust:
A. G. -v- Biggs
[1907] 2 IR
400. "This (£200,000) was not
paid to or through her: it did not
pass through her hands and she
never possessed or enjoyed or con-
trolled it. There was no complete
gift of it to her, nor did she bring
it into settlement. It was paid by
her stepfather to the trustees of her
settlement for the benefit of herself
and her children, and until so paid
it was (A's) proper money. He
therefore was the (disponer). . . " :
408 per Johnson J.
Example (2)
On H's marriage to W, he (H) ef-
fects a policy of life assurance on
his life for a sum of £100,000
payable on his attaining the age of
60 years. Having taken out the
policy, he assigns it to the trustees
of a discretionary trust established
by his future father-in-law for the
benefit of W and the children of the
marriage. H's godmother C (who is
unrelated to him) offers to pay and
pays the premiums payable in
respect of the policy. After some
years, the trustees surrender the
policy and the proceeds of the sur-
render are held by the trustees as
property of the discretionary trust
established by H's father-in-law. H
and not C is the disponer in relation
to the proceeds of the policy:
A. G.
-v- Rial/[
1906] 2 IR 122. "Now,
(C) never had any interest in the
policy. It was effected, not by her,
but by (H): there was no devolution
of it, and the disposition of it
necessary to bring it within section
2 was its assignment by (H) alone
upon trusts under which she (C)
took no interest. Shp was not,
therefore, according to the ordinary
meaning of the words, the 'settlor',
'disponer', . . . or other person from
'the interest' in the policy derived,
and is therefore . . . not within the
definition of 'predecessor' in sec-
tion 2 " : 129 per Palles CB.
Example 3
A dies intestate, whereupon his
sole surviving brother B takes out
letters of administration believing
himself to be the sole surviving
next of kin. A certain Mrs. D ap-
pears and claims one-half of A's
estate on the ground that she is the
daughter of C, a long lost sister of
A and B. B does not accept Mrs.
D's claim, but enters into a deed of
family arrangement whereby he (B)
settles £30,000 of A's estate on
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