IPDI Trust - Life Tenant and Trust Capital

amelia1983

Hello all,

Please can I ask if anyone has experience with dealing with a IIP (IPDI) trust where the trustees can appoint assets (capital) to the Life Tenant? My understanding was originally that the life tenant was automatically entitled to the income from the trust but the capital was earmarked for the remainderman. Therefore the taxation would be on the trustees and would be at the following rates (if not mandated directly to the Life Tenant):

Dividend income - 8.75%
All other income - 20%

However, I have a case where the solicitor is suggesting the IPDI trust is discretionary and they can provide him (Life Tenant) with capital and that the trust would pay the tax at top rate not basic rate for all purposes – IT, CGT, SDLT . They have also suggested that the remainderman will not get the capital on the death of the Life Tenant, but remain in the (discretionary) trust.

This sounds to me like it is a pure discretionary trust and not an IPDI trust? However, they have also said that these trust assets would form part of the Life Tenant's estate for IHT (which is in line with my understanding of an IIP trust).

If anyone has had experience of a similar case I would welcome some help.

Thanks :-)

richardgough

Do you have a copy of the Trust Deed?

amelia1983

I haven't personally seen it. I understand the 'Will' created the trust.

richardgough

If you have not got a copy of the Trust / Will creating the trust then it is impossible for you to make any comment as everything hinges on the exact wording of the trust.

However, if it is really an IPDI (along with flexible powers of appointment) and passing into a discretionary arrangement on death of life tenant then the taxable entity for Income Tax is the life tenant whilst they are alive. It will then revert to the trustees being the taxable entity (at Trust rates) after the death of the life tenant.

However, as the life tenant does not acquire the capital absolutely then for CGT the trustees are the taxable entity.

amelia1983

Thanks Richard. I have managed to get a copy of the Will. This states -
My Trustees must hold whatever remains when these payments (ie debts) have been made (trust fund) on the trusts in the following clauses.

Then it mentions a title - Discretionary Trust and names the beneficiaries as Husband and son (and his descendants).

it then goes on to say
During my trust period, my Trustees may create trusts over all or part of the trust fund for the benefit of any of the Beneficiaries.

I cannot see anywhere in the Will that states the assets should be held for Husband during his lifetime and then pass to the son on his death. Or anything that suggests it is an IIP trust. I am also not aware of any further trust deeds that have been created from the Will.

Does this help at all?

richardgough

Amelia
From what you have written it looks as though there is no IIP and it is just a straightforward discretionary (not IPDI) trust with all taxes falling on the trustees at trust rates.

When it comes to capital distributions then (depending on what assets are held) there may be options to transfer the assets directly to the beneficiaries without any tax liability arising on the trustees.

amelia1983

Thanks Richard. This has been really helpful.