IHTM04461 - Estate Duty surviving spouse exemption: power to appropriate capital

Where a person has the power to appropriate capital and make the settled property their own, it is possible that they were competent to dispose (IHTM04457) of the property and exemption should be denied. Some cases are borderline, and you should refer to Technical for advice if you are in any doubt. The following guidance, and examples, will help in some cases

• a power to appropriate for their own use and benefit such part of the capital of settled property as they may need should not be regarded as making the person competent to dispose of any unappropriated property. (Re Pedrotti’s Will (1859) 27 Beav 583)
• a power to a person, so long as they are entitled to the income of the estate, to apply such portion of the corpus of the estate as they shall think fit for their own use and benefit is treated as making them competent to dispose of the entire capital. (Re Ryder [1914] 1 Ch 865)
• a power to a person if the trust income is insufficient, to use such portion of the estate as is deemed expedient, has been held to have given that person a general power of disposal over the whole fund. (Re Richards [1902] 1 Ch 76)
• if a person has the power to convert to their own use such part of the capital as they thinks fit, they are competent to dispose. (Re Shuker’s Estate [1937] 3 All ER 25)

If the surviving spouse is empowered to require the trustees to pay them part of the capital of the settled property with a limitation on the total amount to be paid during any given period, they are treated as competent to dispose of the settled property to the extent to which the power is capable of exercise at the particular time - for example, the time of the surviving spouse’s death.

Any claim for tax on this basis should be limited to the greatest amount that the surviving spouse could have obtained, but did not obtain, by the exercise of the power at any one time during the continuance of the settlement.