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GAZETTE
JANUARY/FEBRUARY 1988
I nhe r i t ance Tax on
D i sc r e t i ona ry T r us ts
Part 2
S.I03(1) FA 1986
S. 103(1) FA 1986 imposes an
annual "inheritance t a x " (in reality
an annual wealth tax) on property
subject on each 5th April to a
"chargeable discretionary trust". The
annual "inheritance t a x" so payable
is levied at a flat rate of 1 %: s. 106.
The expression " cha r geab le
discretionary t r u s t" is defined in
s.102 as a discretionary trust in
r e l a t i on to w h i ch
(a) t he
" d i spone r" is dead, and (b) there
are no "principal objects". In deter-
mining whether a particular trust is
a "chargeable discretionary t r u s t"
as defined in s . 102 on a particular
5th April, one is thus referred back
once again to the question who, in
relation t o t he t r u s t, is t he
" d i spone r "? A penalty of £1 , 000
or double the inheritance tax
payable, encourages one to arrive
at the correct answer: s.108.
A measure of relief is afforded by
s. 103(4) FA 1986 which provides
that the annual "inheritance t a x "
of 1 % payable on each 5th April is
not to be levied if property subject
to that tax is also subject " o n that
same da t e" (i.e. on the 5th April in
any particular year) or " w i t h in the
year prior to that date" to the once-
off inheritance tax of 3% payable
by reason of s. 106(1) FA 1984.
Example (6)
In 1960 A settles property on
discretionary trusts for the benefit
of his three children, B, C, and D.
B attains the age of 25 years in
1974, C in 1976 and D in 1979.
On 1st February 1986 A dies and
the trust property becomes subject
to the once-off inheritance tax of
3% imposed by s. 106(1) (b) FA
1984. The additional annual in-
heritance tax of 1% imposed by
s. 103(1) FA 1986 will not be
payable on 5th April 1 986.
Identifying the "disponer"
It will be apparent that the crucial
question in relation to both the
once-off inheritance tax of 3% im-
posed by s. 106(1) FA 1984 and
the annual inheritance tax of 1 %
imposed by s. 103(1) FA 1986 is
who is the "disponer" in relation to
the discretionary trust in ques-
t i o n ? " Un t il t h is has been
answered one cannot determine
who the "principal ob j ec t s" are,
whether the disponer is dead, and
whether the trust is a "chargeable
discretionary t r u s t" as defined in
s. 102 FA 1986. In order to answer
this question t wo further questions
must be asked:-
(A ) " Un d e r" (or " i n consequence
o f " ) which " d i spos i t i on" did
the property become subject
to the trust?
( B) Who " p r o v i ded" the property
" f o r the purposes o f " that
" d i spos i t i on "?
To answer (A) requires all the
skill and subtlety of a logician train-
ed in the arts of medieval disputa-
tion. In Example (4) above, for
instance, it is arguable that the
" d i spos i t i on" " u n d e r" which the
property (i.e. the 100 shares of £ 1
in the company hiring out A 's ser-
vices to the film studio) became
subject to the trust was the trust
instrument itself. On the other
hand, one could argue w i th equal
f o r ce t hat t he " d i s p o s i t i o n"
" u n d e r " wh i ch t he p r ope r ty
became subject to the trust was
the " a r r angemen t" of which the
trust was merely one constituent
element.
Such authority as exists sug-
gests that regard must be had to
the
"causa proxima"
rather than to
the
"causa remota": A. G -v- Up-
ton
LR 1 Ex 224, 231 per Bramwell
B. In
Parr-v-A.-G[
1926] AC 239,
for example, property was settled
to the use of A for life w i th re-
mainder to A 's first and other sons
successively in tail male. A and his
eldest son B disentailed and resettl-
ed the property upon trust for A for
life " b y way of restoration and
confirmation" of his life interest
under the original settlement, w i th
remainder to B for life, w i th further
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