The Gazette 1988

• GAZETTE

JANUARY/FEBRUARY 1988

the other hand, is an "interest in expectancy" as defined and is ac- cordingly not " p r ope r t y" for the purposes of the once-off in- heritance tax of 3% imposed by s.103(1) FA 1986: s.106(3) FA 1984 and s. 103(3) FA 1986. "Policies of assurance upon human life" are not property to which the holder becomes "en- titled in possession" until the policy either "ma t u r es" or is "sur- rendered for a consideration in money or money's worth: s.32(1) CATA 1976. It follows from paras, (a) and (b) of s. 106(3) FA 1984 and s. 103(3) FA 1986 that when the interests referred to in para, (a) cease to be "interests in expectency" and the policies of assurance upon human life referred to in para, (b) either "ma t u r e" or are "surrendered" as mentioned in s.32(1) CATA 1976 they then become " p r ope r t y" for the purposes of s. 106(1) and s. 103(1). This may well result in an immediate liability to inheritance tax at 3% by reason of s. 106( 1) (a) FA 1986 if at that point the "disponer" in relation to the dis- cretionary trust is dead and there are no "principal objects" under

the age of 25 years (see Example (9) below). "Discretionary Trusts" This expression has been amend- ed by s. 105 FA 1984 to include not only conventional discretionary trusts, under which trusts or powers relating to the distribution of trust property are vested in trustees or others exercisable at their discretion, but also trusts under which property is held upon trust to accumulate the trust income as an addition to the trust property. The new definition is not as bizarre as might appear at first glance. In Ireland, where neither the Accummulation Act 1800 nor its modern equivalent s. 166(1) Law of Property Act 1925 applies, trust income can normally be accumulated throughout the entire trust period of a life in being and 21 years t he r ea f t e r. The former definition of "discretionary t r us t" in s.2(1) CATA 1976 did not extend to an accumulation trust, and such a trust accordingly enabled the vesting in possession of trust property to be postponed until the end of the trust period in the same way as a conventional discretionary t r us t. The new

definition extends the provisions of s. 106(1) FA 1984 and s. 103(1) FA 1986 to accumulation trusts as we ll as to conven t i onal discretionary trusts. Valuation Date The date upon which property subject to a discretionary trust is to be valued for the purposes of the once-off inheritance tax of 3% payable by reason of s. 106(1) FA 1984 is defined in s. 107(b) to be the later of:- (i)the "da te of the inheritance", as determined by whichever is appropriate of paras, (a), (b) or (c) of s. 106(1) FA 1984, or (ii)the "valuation da t e" of the inheritance deemed under s. 106(1) FA 1984 to have been t aken by the t r ust itself, ascertained in accordance with s.21 CATA 1976. In most cases, the appropriate date will be " t he date of the i n h e r i t a n c e" de t e rmi ned by reference to s. 106(1) FA 1986. The operation of s. 107(b) is best illustrated by specific examples:- Example (8) In 1960 A settles property upon discretionary trusts for the benefit

J. & E. DAVY STOCKBROKERS

Personal Investment

Division

For SPECIALISED INVESTMENT ADVICE UNIT LINKED INVESTMENTS GUARANTEED BONDS

4 9 D A W S ON STREET, DUBL IN 2 .

Phone: 7 9 7 7 8 8 .

7