Settled property: changes to settled property where IHT is not charged on an interest in possession trust
There are a number of dealings with trust property that do not result in an interest in possession (IIP) (IHTM16000) coming to an end
- the payment of the costs of trustees out of capital does not result in an IIP coming to an end. The IIP subsists in the trust fund after deduction of the liability for costs, so that payment of the costs has no effect on the beneficiary’s interest. The result is similar where CGT is payable on a sale or other disposal of a trust asset.
- the types of fees usually charged by trust corporations and the treatment of withdrawal fees paid out of capital are discussed in IHTM16094. The payment of an income fee, being a payment in respect of costs or expenses, does not bring an IIP to an end.
- the payment of premiums on certain types of settled insurance policies does not bring an IIP to an end, see IHTM16000
- where the trust income is divisible between an annuitant and, say, other income beneficiaries it will seldom be divided in the same proportions each year and hence there will be changes from time to time in the capital “slice” of each beneficiary. Such changes do not affect the respective beneficial entitlements and claims for tax should not be founded upon them. Nevertheless, you should refer to TG any case in which the proportions appear to have been altered unusually.
- where a purchased annuity has been substituted for a life interest in property and the parties contend that the principle of Re Beit  Ch 53 applies on the ground that the transaction was merely a change of investment, you should refer the case to TG. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)