Contents
Settlement Type Flowchart (IHT and CGT) .....................................................................................................................................................2
INHERITANCE TAX .....................................................................................................................................................................................................4
Template For Iht Calculations ..............................................................................................................................................................................9
Exits Before First Ten Year Anniversary.............................................................................................................................................................14
Iht On Any Ten Year Anniversary .......................................................................................................................................................................15
Exits Between Ten Year Anniversaries ..............................................................................................................................................................16
CAPITAL GAINS TAX ................................................................................................................................................................................................17
Capital Gains Tax Calculation Template ............................................................................................................................................................19
BASIC WILL DRAFTING – PRELIMINARY MATTERS .................................................................................................................................................21
Basic Content Of A Will ......................................................................................................................................................................................24
ENDURING POWERS OF ATTORNEY, LASTING POWERS OF ATTORNEY + LIVING WILLS.......................................................................................32
Enduring Powers Of Attorney ............................................................................................................................................................................32
Lasting Powers Of Attorney ...............................................................................................................................................................................33
Living Wills + Advance Decisions To Refuse Treatment ....................................................................................................................................36
OPTIONS FOR MARRIED COUPLES – NRB Legacies + Partially Exempt Transfers ..................................................................................................38
Transfers Between Spouses And Civil Partners .................................................................................................................................................42
Transfers From Parents To Children + Remoter Issue .......................................................................................................................................43
The Family Home ...............................................................................................................................................................................................44
Reservation Of Benefit .......................................................................................................................................................................................45
UNQUOTED SHARES – LIFETIME TAX PLANNING - BPR + HOLD-OVER RELIEF .......................................................................................................47
POST-DEATH ARRANGEMENTS ...............................................................................................................................................................................49
Post-Death Variations ........................................................................................................................................................................................50
Drafting A Post-Death Varitiation + The Statement Of Intent ..........................................................................................................................53
TAXATION OF SETTLEMENTS ..................................................................................................................................................................................55
Iht + Settlements ................................................................................................................................................................................................55
Cgt + Settlements ...............................................................................................................................................................................................58
Income Tax + Settlements ..................................................................................................................................................................................59
DRAFTING LIFETIME SETTLEMENTS ........................................................................................................................................................................60
Drafting Beneficial Interests ..............................................................................................................................................................................64
TRUST ADVANCES + APPOINTMENTS .....................................................................................................................................................................65
Exercising The Powers Of Advancement And Appointment .............................................................................................................................67
TRUST ADMINISTRATION........................................................................................................................................................................................72
Taxation During The Administration Of A Settlement ......................................................................................................................................74
WILL TRUSTS ...........................................................................................................................................................................................................76
Trusts For A Bereaved Minor (Bmt) ...................................................................................................................................................................77
Trusts For A Bereaved Young Person (’18-25’ Trust) .........................................................................................................................................78
Immediate Post-Death Interests (Ipdi) ..............................................................................................................................................................78
WILL DRAFTING .......................................................................................................................................................................................................79
Precatory Trusts .................................................................................................................................................................................................79
Wills Containing Flexible Trusts .........................................................................................................................................................................80
OVERSEAS DIMENSION ...........................................................................................................................................................................................85
taxation of the individual + the foreign element ..............................................................................................................................................86
trustees + the foreign element ..........................................................................................................................................................................89
1
, Settlement Type Flowchart (IHT and CGT)
For IHT/CGT on creation and appointment
Was the trust created /
did the death occur:
before or after 22 March
2006?
Before After
Interest in trust in Is there an Was the trust Relevant
Yes Lifetime
interest in created during property trust
(Lifetime trust → Chart 2) possession (e.g. lifetime or by will? (Chart 1)
life interest)?
(Created by will → Chart 4)
No Will
Is there an
Relevant property trust Qualifying
immediate post Yes interest in
(Lifetime trust → Chart 1) death interest
possession
(e.g. life interest)?
(Created by will → Chart 3) trust
(Chart 4)
No
Is it a bereaved
Income tax minor trust or 18- Yes BMTs and
25 trust? 18-25 trusts
(Chart 5)
Where Where No
beneficiaries have beneficiaries don’t
a right to income have a right to
Relevant
(Chart 6) income
property trust
(Chart 7)
(Chart 3)
CGT on sales by Trustees
(Actual disposals)
All trusts → Chart 8
2
,Key Terms:
Life Interest = Right to income arising from trust
Interest in Possession (IIP) = the beneficiary has an immediate right to receive income arising from trust
Immediate Post Death Interest (IPDI) = the beneficiary has an interest in possession which they become entitled to
under a will
Remainder Interest = the beneficiary’s interest is postponed by a prior interest in the same assets (no IIP/IPDI)
Discretionary Trust = the trustees can decide whether to pay the income or capital to one, some, or all of the
beneficiaries, and they can also choose to retain the income (no IIP/IPDI)
Relevant Property Trust = trust property in which no qualifying interest in possession exists. All property settled on
discretionary trusts is relevant property unless held on a ‘special trust’
3
, INHERITANCE TAX
IHT is chargeable whenever a person makes a transfer of value. This involves:
1. Identifying that there is a transfer of value (e.g. when a person dies/some lifetime transfers);
2. Identifying the value transferred (e.g. everything the deceased owned beneficially, less debts and funeral
expenses);
3. Identifying relevant exemptions and reliefs;
4. Identifying the appropriate rate of tax.
Rates of IHT chargeable on the death estate: NRB
→ 0% on the first £325,000 (nil rate band/NRB)
o This depends upon the value of chargeable transfers made by the deceased in the 7 years prior to
death.
→ 40% on the remaining balance.
→ Where at least 10% of a person’s estate is left to charity, there is a lower rate of 36%.
The Residence Nil → 0% on residence up to £175,000
Rate Band (RNRB) o For estates valued above £2 million, there is a tapered reduction of the
RNRB of £1 for every £2 over £2 million.
o Estates above £2.35 million will therefore receive no residence nil rate band
The RNRB applies only where a residence or interest in a residence if ‘closely inherited’.
‘Closely’ requires the residential interest to pass to:
(a) The deceased’s lineal descendants;
(b) The current spouse or civil partner of the deceased’s lineal descendants;
(c) The widow/widower or surviving civil partner of a lineal descendant who has
predeceased the deceased, unless remarried.
‘Inherited’ = a disposition on death effected by will, the intestacy rules or otherwise.
‘Residence’ = a dwelling which has been the deceased’s residence at some time during his
period of ownership.
→ Limited to one property.
→ No requirement that it be the deceased’s primary residence or a UK property
(holiday homes will qualify).
→ 0% on the first £325,000
Rates of IHT for → 20% on the balance.
lifetime chargeable
transfers (LCT’s) The amount of NRB available is reduced by the total value of chargeable transfers made by
that person in the 7 years prior to the chargeable transfer.
Many lifetime transfers are PET’s (potentially exempt transfers), which become chargeable
only if the donor dies within 7 years.
Potentially Exempt These are lifetime transfers made which, apart from s.3A IHTA 1984, would be chargeable
Transfers (PET’s) transfers. The following are PET’s:
(a) Gifts to other individuals, provided the donee’s estate is increased or the property
transferred becomes comprised in his estate.
(b) Transfers to trustees of a trust for the disabled.
(c) Transfers made to trustees of a ‘bereaved minor’s trust’ on the ending of an
‘immediate post death interest’.
No charge arises at the time the PET is made and it is treated as fully exempt unless the
transferor dies within the next 7 years.
Tapering relief If a transferor dies more than 3 years after a transfer, the full death rate of tax is reduced:
(s.7(4) IHTA 1984) → Transfers within 3-4 years before death = 80% of death charge (32%);
→ Transfers within 4-5 years before death = 60% of death charge (24%);
→ Transfers within 5-6 years before death = 40% of death charge (16%);
→ Transfers within 6-7 years before death = 20% of death charge (8%).
4
Settlement Type Flowchart (IHT and CGT) .....................................................................................................................................................2
INHERITANCE TAX .....................................................................................................................................................................................................4
Template For Iht Calculations ..............................................................................................................................................................................9
Exits Before First Ten Year Anniversary.............................................................................................................................................................14
Iht On Any Ten Year Anniversary .......................................................................................................................................................................15
Exits Between Ten Year Anniversaries ..............................................................................................................................................................16
CAPITAL GAINS TAX ................................................................................................................................................................................................17
Capital Gains Tax Calculation Template ............................................................................................................................................................19
BASIC WILL DRAFTING – PRELIMINARY MATTERS .................................................................................................................................................21
Basic Content Of A Will ......................................................................................................................................................................................24
ENDURING POWERS OF ATTORNEY, LASTING POWERS OF ATTORNEY + LIVING WILLS.......................................................................................32
Enduring Powers Of Attorney ............................................................................................................................................................................32
Lasting Powers Of Attorney ...............................................................................................................................................................................33
Living Wills + Advance Decisions To Refuse Treatment ....................................................................................................................................36
OPTIONS FOR MARRIED COUPLES – NRB Legacies + Partially Exempt Transfers ..................................................................................................38
Transfers Between Spouses And Civil Partners .................................................................................................................................................42
Transfers From Parents To Children + Remoter Issue .......................................................................................................................................43
The Family Home ...............................................................................................................................................................................................44
Reservation Of Benefit .......................................................................................................................................................................................45
UNQUOTED SHARES – LIFETIME TAX PLANNING - BPR + HOLD-OVER RELIEF .......................................................................................................47
POST-DEATH ARRANGEMENTS ...............................................................................................................................................................................49
Post-Death Variations ........................................................................................................................................................................................50
Drafting A Post-Death Varitiation + The Statement Of Intent ..........................................................................................................................53
TAXATION OF SETTLEMENTS ..................................................................................................................................................................................55
Iht + Settlements ................................................................................................................................................................................................55
Cgt + Settlements ...............................................................................................................................................................................................58
Income Tax + Settlements ..................................................................................................................................................................................59
DRAFTING LIFETIME SETTLEMENTS ........................................................................................................................................................................60
Drafting Beneficial Interests ..............................................................................................................................................................................64
TRUST ADVANCES + APPOINTMENTS .....................................................................................................................................................................65
Exercising The Powers Of Advancement And Appointment .............................................................................................................................67
TRUST ADMINISTRATION........................................................................................................................................................................................72
Taxation During The Administration Of A Settlement ......................................................................................................................................74
WILL TRUSTS ...........................................................................................................................................................................................................76
Trusts For A Bereaved Minor (Bmt) ...................................................................................................................................................................77
Trusts For A Bereaved Young Person (’18-25’ Trust) .........................................................................................................................................78
Immediate Post-Death Interests (Ipdi) ..............................................................................................................................................................78
WILL DRAFTING .......................................................................................................................................................................................................79
Precatory Trusts .................................................................................................................................................................................................79
Wills Containing Flexible Trusts .........................................................................................................................................................................80
OVERSEAS DIMENSION ...........................................................................................................................................................................................85
taxation of the individual + the foreign element ..............................................................................................................................................86
trustees + the foreign element ..........................................................................................................................................................................89
1
, Settlement Type Flowchart (IHT and CGT)
For IHT/CGT on creation and appointment
Was the trust created /
did the death occur:
before or after 22 March
2006?
Before After
Interest in trust in Is there an Was the trust Relevant
Yes Lifetime
interest in created during property trust
(Lifetime trust → Chart 2) possession (e.g. lifetime or by will? (Chart 1)
life interest)?
(Created by will → Chart 4)
No Will
Is there an
Relevant property trust Qualifying
immediate post Yes interest in
(Lifetime trust → Chart 1) death interest
possession
(e.g. life interest)?
(Created by will → Chart 3) trust
(Chart 4)
No
Is it a bereaved
Income tax minor trust or 18- Yes BMTs and
25 trust? 18-25 trusts
(Chart 5)
Where Where No
beneficiaries have beneficiaries don’t
a right to income have a right to
Relevant
(Chart 6) income
property trust
(Chart 7)
(Chart 3)
CGT on sales by Trustees
(Actual disposals)
All trusts → Chart 8
2
,Key Terms:
Life Interest = Right to income arising from trust
Interest in Possession (IIP) = the beneficiary has an immediate right to receive income arising from trust
Immediate Post Death Interest (IPDI) = the beneficiary has an interest in possession which they become entitled to
under a will
Remainder Interest = the beneficiary’s interest is postponed by a prior interest in the same assets (no IIP/IPDI)
Discretionary Trust = the trustees can decide whether to pay the income or capital to one, some, or all of the
beneficiaries, and they can also choose to retain the income (no IIP/IPDI)
Relevant Property Trust = trust property in which no qualifying interest in possession exists. All property settled on
discretionary trusts is relevant property unless held on a ‘special trust’
3
, INHERITANCE TAX
IHT is chargeable whenever a person makes a transfer of value. This involves:
1. Identifying that there is a transfer of value (e.g. when a person dies/some lifetime transfers);
2. Identifying the value transferred (e.g. everything the deceased owned beneficially, less debts and funeral
expenses);
3. Identifying relevant exemptions and reliefs;
4. Identifying the appropriate rate of tax.
Rates of IHT chargeable on the death estate: NRB
→ 0% on the first £325,000 (nil rate band/NRB)
o This depends upon the value of chargeable transfers made by the deceased in the 7 years prior to
death.
→ 40% on the remaining balance.
→ Where at least 10% of a person’s estate is left to charity, there is a lower rate of 36%.
The Residence Nil → 0% on residence up to £175,000
Rate Band (RNRB) o For estates valued above £2 million, there is a tapered reduction of the
RNRB of £1 for every £2 over £2 million.
o Estates above £2.35 million will therefore receive no residence nil rate band
The RNRB applies only where a residence or interest in a residence if ‘closely inherited’.
‘Closely’ requires the residential interest to pass to:
(a) The deceased’s lineal descendants;
(b) The current spouse or civil partner of the deceased’s lineal descendants;
(c) The widow/widower or surviving civil partner of a lineal descendant who has
predeceased the deceased, unless remarried.
‘Inherited’ = a disposition on death effected by will, the intestacy rules or otherwise.
‘Residence’ = a dwelling which has been the deceased’s residence at some time during his
period of ownership.
→ Limited to one property.
→ No requirement that it be the deceased’s primary residence or a UK property
(holiday homes will qualify).
→ 0% on the first £325,000
Rates of IHT for → 20% on the balance.
lifetime chargeable
transfers (LCT’s) The amount of NRB available is reduced by the total value of chargeable transfers made by
that person in the 7 years prior to the chargeable transfer.
Many lifetime transfers are PET’s (potentially exempt transfers), which become chargeable
only if the donor dies within 7 years.
Potentially Exempt These are lifetime transfers made which, apart from s.3A IHTA 1984, would be chargeable
Transfers (PET’s) transfers. The following are PET’s:
(a) Gifts to other individuals, provided the donee’s estate is increased or the property
transferred becomes comprised in his estate.
(b) Transfers to trustees of a trust for the disabled.
(c) Transfers made to trustees of a ‘bereaved minor’s trust’ on the ending of an
‘immediate post death interest’.
No charge arises at the time the PET is made and it is treated as fully exempt unless the
transferor dies within the next 7 years.
Tapering relief If a transferor dies more than 3 years after a transfer, the full death rate of tax is reduced:
(s.7(4) IHTA 1984) → Transfers within 3-4 years before death = 80% of death charge (32%);
→ Transfers within 4-5 years before death = 60% of death charge (24%);
→ Transfers within 5-6 years before death = 40% of death charge (16%);
→ Transfers within 6-7 years before death = 20% of death charge (8%).
4
