Instalment option: discretionary trusts
Charges under the discretionary trust regime need to be considered separately from charges on a lifetime cesser of an interest in possession (IHTM30281).
Under IHTA84/S227 (1) instalments are available if either
- the tax attributable to the qualifying property is borne by the person benefiting from the transfer, or
the property concerned continues to be comprised in the settlement.IHTA84/S227 (1)(b) makes the instalment facility available where the tax attributable to the chargeable event is borne by the beneficiary.
- A proportionate charge under the non-interest in possession regime is a chargeable transfer - IHTA84/S2 (3) - and thus the instalments basis under IHTA/S227 (1)(b) is available to a discretionary beneficiary.
- In view of these conditions a taxable property may have dual qualification for instalments.
ExampleIf the trustees of a discretionary trust appoint a house to a beneficiary for life, on condition that they will bear the inheritance tax payable on the appointment, instalments treatment is available under IHTA84/S227 (1)(b) or IHTA84/S227 (1)(c). If the trustees later appoint the house to that beneficiary absolutely, it ceases to be comprised within the settlement. Under IHTA84/S227 (5)(b) this is deemed to be a sale of the property and the instalment option under IHTA84/S227 (1)(c) would be lost. However, the beneficiary can still rely on IHTA84/S227 (1)(b) and thus the instalment option continues.
It should be noted that under IHTA84/S227 [last part] the persons paying the tax must elect for instalments treatment. They are not required to elect for a particular enabling sub section.
Qualifying property (discretionary trusts)The qualifying property is the same as for PETs (
For control holdings (IHTM30253) of shares or securities, the control required is that of the trustees immediately prior to the chargeable transfer.