Policy paper

Statement of Practice 7 (1984)

Published 11 October 1984

The Commissioners for HM Revenue and Customs (HMRC) Statement of Practice 9/81, which was issued on 23 September 1981 following discussions with the Law Society, set out HMRC’s views on the Capital Gains Tax implications of the exercise of a power of appointment or advancement when continuing trusts are declared, in the light of the decision of the House of Lords in Roome and Denne v Edwards ((1981) STC 96). Those views have been modified to some extent by the decision of the Court of Appeal in Bond v Pickford ((1983) BTC 313.

In Roome and Denne v Edwards, the House of Lords held that where a separate settlement is created there is a deemed disposal of the relevant assets by the old trustees for the purposes of TCGA 1992 s 71(1). But the judgements emphasised that, in deciding whether or not a new settlement has been created by the exercise of a power of appointment or advancement, each case must be considered on its own facts, and by applying established legal doctrine to the facts in a practical and commonsense manner. In Bond v Pickford the judgments in the Court of Appeal explained that the consideration of the facts must include examination of the powers which the trustees purported to exercise, and determination of the intention of the parties, viewed objectively.

It is now clear that a deemed disposal under TCGA 1992 s 71(1) cannot arise unless the power exercised by the trustees, or the instrument conferring the power, expressly or by necessary implication, confers on the trustees authority to remove assets from the original settlement by subjecting them to the trusts of a different settlement. Such powers (which may be powers of advancement or appointment) are referred to by the Court of Appeal as ‘powers in the wider form’. However, the Commissioners for HMRC consider that a deemed disposal will not arise when such a power is exercised and trusts are declared in circumstances such that:

• the appointment is revocable
• the trusts declared of the advanced or appointed funds are not exhaustive so that there exists a possibility at the time when the advancement or appointment is made that the funds covered by it will on the occasion of some event cease to be held upon such trusts and once again come to be held upon the original trusts of the settlement

Further, when such a power is exercised the Commissioners for HMRC consider it unlikely that a deemed disposal will arise when trusts are declared if duties in regard to the appointed assets still fall to the trustees of the original settlement in their capacity as trustees of that settlement, bearing in mind the provision in TCGA 1992 s 69(1)) that the trustees of a settlement form a single and continuing body (distinct from the persons who may from time to time be the trustees).

Finally, the Commissioners for HMRC accept that a power of appointment or advancement can be exercised over only part of the settled property and that the above consequences would apply to that part.