Distribution from a relevant property trust settled by Will: when s.144 applies
IHTA84/S144 applies where
- property comprised in a person’s estate immediately before his death is settled on discretionary trusts by their will, and
- within two years of that person’s death, and
- before any interest in possession has subsisted in the property (and where the testator dies on or after 22 March 2006, an interest in possession here means only an immediate post death interest or a disabled person’s interest (IHTM16060))
- an event occurs which
- would prima facie give rise to a proportionate charge or flat rate charge (for example, an event resulting in the deceased’s widow becoming beneficially entitled would be such a chargeable occasion), or
- would prima facie give rise to such a charge but for IHTA84/S75 and 75A and IHTA84/S76 or IHTA84/Sch4 para 16(1) (relief for property going to employee trusts, charities, political parties, IHTA84/Sch 3 bodies, public benefit, and maintenance funds for historic buildings etc) and for deaths on or after 10 December 2014 IHTA84/S65(4)
Where the conditions outlined above are not satisfied, and therefore IHTA84/S144 cannot apply, include cases where
- property is given by will for immediate absolute distribution at the discretion of executors or others, or
- for deaths before 10 December 2014 the event occured within three months of the testator’s death (as in view of IHTA84/S65(4) it would not give rise to a charge).
The position in the second bullet above was considered in the case of Frankland v IRC (1997) STC 1450 which upheld our interpretation of the law. For deaths on or after 10 December 2014 it no longer matters if the event was within three months of the testator’s death because of amendments made in the summer Finance Bill 2015.
Finance Act 2006 introduced new categories of tax-advantaged trusts – immediate post-death interest (IHTM16060), trusts for bereaved minors (IHTM42815), and age 18-to-25 trusts (IHTM42816) – that can only be set up under a person’s will or the rules of intestacy. Without express provision, an appointment out of a discretionary trust set up by someone’s will could not create one of these new trusts because it would not trigger the chargeable event referred to above. It could not therefore be treated under S144, as it applied before 22 March 2006, as provided for in the will of the person who had died.
Finance Act 2006 therefore made special provision to ensure that, where an appointment is made on or after 22 March 2006 on terms that would have created such a trust if they had been included in the will of the person who has died, S144 shall apply and the results of the appointment shall be treated as if the will had provided for them, IHTA84/S144(3)-(6).