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HMRC internal manual

Capital Gains Manual

2006 IHT changes: IHT treatment from 22 March 2006: trusts for young people

Bereaved Minor Trusts: IHTA84/S71A introduces a new regime for trusts for bereaved minors,including those established before 22 March 2006. The conditions are similar to thoseapplying under FA05/S35, see TSEM3440+ which provide that the CGT and IT liabilities arebased on the circumstances of the minor rather than the trustees’ rates. The mostimportant conditions are that only the bereaved minor can benefit during the lifetime ofthe trust and he must take absolutely at 18. IHTA/S89 (disabled trusts) takes priority.The trust can benefit more than one bereaved minor, for example where on an intestacy aparent leaves two minor children.

IHTA84/S71B provides for a charge where the property ceases to qualify, or the trusteesreduce the value of the settled property, but there is no IHT charge on the minor becomingabsolutely entitled or dying.

A&M Trusts: IHTA84/S71 does not apply to property settled after 22 March 2006.Underthe revised S71, where the property was settled before 22 March 2006, with effect from 6April 2008, the age by which a person must become beneficially entitled to settledproperty is reduced to 18 and settled property may only continue to qualify for treatmentunder the revised S71 if the trust is amended if necessary and the beneficiary will takethe property absolutely at 18. However there is no immediate charge on 6 April 2008 if thetrust is not amended.

18-25 Trusts: IHTA84/S71D applies to a will trust of a deceased parent of a person‘B’, who is not yet 25, whether or not it was established before 22 March 2006.It also applies to trusts set up by the Criminal Compensation Commission for such aperson. It does not apply to a trust falling within any of the other Classes mentioned inCG36542-4. This section applies where a trust ceases to be an S71 IHTA trust before 6April 2008, or because on 6 April 2008 it ceases to meet the new age limit. The conditionsare that B will become absolutely entitled to the settled property and any accumulationsof income on or before his 25th birthday, and no one else other than any other beneficiaryunder 25, can benefit in the meantime. There is a chargeable transfer where S71D ceases toapply or there is a value shift, except where B becomes absolutely entitled or dies underthe age of 18.