IHTM42227 - The settlement: variation of discretionary will trusts (IHTA84/S144)

Advice on IHTA84/S144 appointments is given from IHTM35181.

Any distribution within 2 years may qualify under S144, even though it may not be claimed as such. Inheritance Tax (IHT) applies as if the will had provided that on the testator’s death the property should be held in the same way it is applied after the event. So, if property is appointed to a charity, charity exemption would apply. 

Where the testator has died on or after 22 March 2006, the reference to ‘any interest in possession (IIP)’ applies only to an IIP that is an immediate post-death interest or a disabled person’s interest (IHTM16060). IHTA/S144 has also been extended, for deaths both before and after 22 March 2006, so that its relieving effect can apply to the creation of an immediate post-death interest or a trust for a bereaved minor under an appointment.

If S144 applies, the absence of a chargeable event for IHT may adversely impact any claim for Capital Gains Tax holdover relief.  (IHTM42117)

• whether the trusts are, and have been, non-IIP (IHTM16062) or non-qualifying IIP trusts (IHTM42161), or
• whether the event would otherwise be chargeable under the discretionary trust regime.

Appointments made in the first quarter 

If, before 10 December 2014, the appointment from the trust occurs in the first quarter after commencement/death then IHTA84/S65(4) applies. This provision states that there is no chargeable event for IHT purposes and acts in precedence to S144. The effect is that the original trust is still treated as having been set up, but that the appointment is not chargeable to tax. If property is appointed to a charity in the first quarter, there is no scope for S144 (2) to operate to enable charity exemption to be given on the death. On or after 10 December 2014, IHTA84/65(4) does not apply, so that a transfer in the first quarter is now also treated as coming with S144 (2). 

See IHTM42117.