CG37830 - Separate settlements: appointment or advancement by trustees: practical approach
Disposal by trustee of first settlement
Board’s Statement of practice SP7/84
Introduction
A power of appointment or advancement over settled property may be exercised in such a way that no beneficiary becomes absolutely entitled to the trust assets as against the trustees because those assets are still held in trust as settled property. In these circumstances, it is necessary to decide whether the property has remained in the original settlement or whether it has become subject to what is essentially a new settlement.
In any such case you should first ask whether new exhaustive trusts over specific property have been created. If no such trusts have been created, then you can accept that there is no new settlement.
Otherwise you should ask whether the trustees consider that a new settlement has been created, for Capital Gains Tax purposes, and to give their reasons for their view. You should obtain from them the original settlement deed, if you do not have it already, the Deed of Appointment or Advancement, and any other relevant document, and consider the case in the light of the principles below.
Disposal by trustees of first settlement
If a new settlement has been created by the exercise of a power of appointment or advancement, it follows that the trustees of the new settlement have become absolutely entitled (although they are not beneficially entitled) as against the trustees of the original settlement, see CG37800, with consequential deemed disposals of the assets by the latter under TCGA92/S71 (1). This point is made clear by the House of Lords judgment in Roome v Edwards, 54TC359. The instructions in the following paragraphs provide guidelines to be followed in determining whether a new settlement has been created, having regard to the judgments in Hart v Briscoe and Hoare Trustees v Gardner, 52TC53, Roome v Edwards, 54TC359, Bond v Pickford, 57TC301 and Swires v Renton, L3278. These instructions should be applied whether or not the same persons are trustees of both the original and the new settlements.
Board’s Statement of Practice SP7/84
On 11 October 1984, the Board published a Statement of Practice, SP7/1984, replacing SP9/1981, the substance of which is as follows: -
- In deciding whether or not a new settlement has been created, each case must be considered on its own facts and by applying established legal doctrine to the facts in a common sense manner. 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.
- A deemed disposal under Section 71(1), cannot arise unless the power exercised by the trustees confers on the trustees expressly or by necessary implication authority to remove assets from the original settlement by subjecting them to the trusts of a different settlement - such a power was referred to by the Court of Appeal in Bond v Pickford as being `in the wider form’.
- When a power `in the wider form’ is exercised, a deemed disposal under Section 71(1) cannot arise if the appointment is revocable or the trusts declared in exercise of the power are not exhaustive (for example where there is a possibility of reversion to the original trusts on the failure of a contingent interest).
- When a power `in the wider form’ is exercised, a deemed disposal under Section 71(1) is unlikely 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.
(Note. A single settlement can have more than one set of trustees but TCGA92/S69 (3) requires them to be treated as a single body, see CG33340; on the other hand, if there is a separate settlement, TCGA92/S69 (1) requires the trustees to be treated as a separate body.)
- The guidelines above should be followed whether the appointment, etc, extends to the whole or only to part of the settled property.
General comments
It should be borne in mind that these guidelines are for general guidance, and that a decision in any particular case must have regard to all the facts of that case. Moreover, the consequences for Income Tax may not always be identical to those for Capital Gains Tax.
Where a new settlement comes into existence, except as the result of the exercise of a general power of appointment, the settlor of the new settlement is the settlor of the old one, even if he is dead, by reason of the principles expressed in Hart v Briscoe, 53TC, 71H to 73B and Chinn v Collins, 54TC311.
Where a deed of appointment, etc, is submitted, the reply may include advice on the treatment of the deed of appointment, etc, for Capital Gains Tax purposes, and no action should be taken in such cases until the reply is received.