HMRC have today issued an announcement confirming that where assets are held on trust for a minor absolutely, such a trust will not be treated as a settlement for inheritance tax purposes under section 43 (2) Inheritance Tax Act 1984.
Following the changes to inheritance tax introduced by Finance Act 2006, in previous correspondence with professional bodies, HMRC had cast doubt over the correct inheritance tax treatment of bare trusts for minors giving rise to concerns that property held for minors would be relevant property within the expanded discretionary trust regime. Those doubts have now been dispelled and HMRC have indicated that they concur with the strongly held view of the representative bodies that no distinction should be drawn between bare trusts for minors and those for adults.
The practical consequences of this are:
- it is now possible to exit the relevant property regime by an outright appointment to a minor; and
- there is no continuing uncertainty that gifts to minors will constitute potentially exempt transfers outside the relevant property regime.
HMRC had previously suggested in December 2006 that “it is arguable that it [a gift held for a minor] would be a [settlement] …. within s.43 (2) IHTA”. This argument was based on the effect of section 31 Trustee Act 1925 which, during the minority of a beneficiary, gives trustees a discretion to apply the income of the trust fund for the maintenance, education or benefit of that minor beneficiary. The effect of this would have been that it was not possible to make a potentially exempt transfer to a minor and that all funds held for minors would have been treated as relevant property, subject to the principal and proportionate charges.
HMRC are consulting with regard to issuing more detailed guidance on this point, which is expected shortly.